There is a misconception with some that a lender offers a set rate to any borrowers they decide to accept for credit. But that is not strictly true. What’s more, any individual can apply for two different loans and get different rates from separate lenders. But why? We examine why lenders offer varying interest rates.
Why Lenders Offer Varying Interest Rates – Attracting Customers
It’s basic marketing — everyone understands that lenders lure clients to pick their product by offering favourable APRs. So it’s logical that if a lender has tied a low representative APR to one of its products, you’d notice and want to take advantage of it. It would be really inconvenient if you came to apply and the APR was not what they seemed to say it would be. But how is it possible for a lender to get away with it? Isn’t this misleading advertising?
To begin with, no, it is not. A representative APR is a real APR that the lender offers to customers. And it’s one that the lender offers to the vast majority of them.
In fact, lenders are required to give the advertised interest rate to at least half (51%) of its customers. The other 49% can discover that lenders will send different APRs their way. As a potential borrower you must be aware of this.
Why Lenders Offer Varying Interest Rates – Why Is This?
So the lender isn’t lying. They do provide that rate. It’s just that they’re picky about who they give it to. Customers with the best credit histories find that lenders will offer them the best APR rates. It may seem paradoxical to provide the greatest rates to people who need them the most, but that’s the way the system works and the price you pay for having a good credit history. If you have a spotty credit history, on the other hand, it doesn’t necessarily imply that the lender won’t lend to you (although it could), but it does mean that they may grant you credit at a higher rate of interest.
This might be unpleasant and make you feel like you’re being refused a decent deal, especially if you’ve spent time researching lenders and goods and discovered one you like. So you must decide whether to accept the product at the higher rate of interest or continue your search.
Work On Your Credit Score
We’d love to provide you one, but there’s no way we can provide you with a short-term solution that guarantees you’ll get the best APR advertised by a lender.
You can work on improving your credit score. This demonstrates to lenders that you’re a trustworthy and responsible borrower who knows how to manage their credit, which could lead to better terms and lower APRs. However, this isn’t something that can be accomplished in a single day. But we hope that this article has at least clarified why a lender might offer you a different interest rate than the one advertised.
