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The consumer credit directive is set to shake up the lending market when it is launched on 1 February. It is supposed to help us better understand personal finance products.

But new research from uSwitch.com reveals that the new EU regulations may actually leave consumers even more bewildered and discontented than before, at least initially.

Just one in ten consumers understand what the directive will mean for them and even though the directive is less than two weeks away, over half aren't even aware of it.

Change to APRs advertised
A key part of the directive is to make credit providers display an APR that 51% of its customers are offered. This means that although advertising won't be personal to consumers, it will be a fairer representation of the rate they are likely to get. However, the research shows that just a quarter of consumers understand the new representative APR, with one in three believing it is a reflection of their outstanding balance.

The move to display a representative APR is expected to lead to higher advertised rates. This could lead to a fall in the number of applications, until consumers get used to the new advertising. The change to a representative APR will put off nearly 13 million consumers (43%) who would look for a lower rate if the new advertised APR was much higher.

The research also shows that although just 2% think the current rules on advertising for APRs are fine, one in ten disagree with the new initiative - half of these think it is too confusing.

Over three quarters think the new system is a good idea, but more needs to be done, especially on the transparency of rates.

Credit ratings
The directive aims to empower consumers, but they can also help themselves by taking simple steps such as checking their credit rating, which can help customers choose the most suitable product to apply for, based on their personal situation. However, over two thirds have no idea what their credit rating is, and 44% have never checked. Less than one in ten check it regularly.

Stefan Maryniak, personal finance expert at uSwitch.com, says: "The consumer credit directive is about providing consumers with a level playing field - unfortunately for borrowers it looks likes a bumpy ride at least until the changes have bedded in and the market and consumers have adjusted. It is a step in the right direction towards navigating consumers through the opaque lending market, all be it a cautious and tentative one.

"By forcing suppliers to give greater prominence to the facts in any advertising, the directive should bring greater transparency to the personal finance market. It will also encourage responsible lending from the banks and give consumers more power to get out of a contract, with a prolonged cooling off period, and an easier way of opting out during this time.

"However, the majority of consumers are unaware of the directive or don't understand what it will mean to them, which means many may be left confused if the APRs rise quickly by the end of February. But overall the move is to be welcomed. It should mean consumers are less likely to fall for incentives, ignore the important fees associated with credit and make multiple applications because the advertised rate is different to the one they are offered."

He added: "The directive won't solve every problem and we urge consumers to take this as a wake-up call to start taking control of their financial situation. One very simple but important step they should take is to find out their credit rating, which can be a big help when looking at financial products. It is something that consumers can do to gain clarity in a confusing credit world, and uSwitch.com currently offers a one month free trial with Experian, for consumers looking to brush up on their finances."