Advertising is a multi billion pound industry, and it is clearly effective. And that extends to the world of personal loans. In a crowded market, it is all important, and the key inducement to potential borrowers is a competitive rate of interest. Rates splashed in big letters on your screen. But this is not the rate that everyone who applies will get. Moolr look at a common question customers ask us. Why did I not get the advertised rate for my loan?
Common Occurrence
It is a common occurrence that borrowers see a rate for a loan or mortgage product on TV or in print and then apply but the lender offers a different rate. This includes people who consider themselves to have a good credit score, are financially comfortable and work full time.
The Process
The fact is that lenders will generally offer the most competitive rates to those with the best credit scores, and a history of stability. Or to put it another way, to those that lenders see as the most trustworthy. The less trustworthy they consider a loan, the higher the rates. Or the application will be declined. But this is not the only factor that decides the rates offered.
These competitive rates can also act as a good incentive for those with bad credit scores. If the interest rates are lower for those with good credit scores, it gives people reason to work on improving theirs. This is also how credit cards work. You will pay lower rates based on your current credit score. But loans have other criteria too.
Understanding the Representative APR
Most credit applicants understand the way APR works. The APR which lenders advertise on a website or brochure will only be available to 51% of successful applicants. This is a rule provided by The Consumer Credit EU Directive since it means that over half of the people who apply will receive the advertised rate. For the other 49%, lenders can offer different rates, often higher. Imagine a scenario where all applicants have a great credit score, to stretch the point made. This would mean lenders would still offer some a higher rate than advertised, potentially.
Another phrase you may see bandied about is ‘typical APR’. This is the rate which must be sold to at least 66% of successful applicants. The factors which affect your rate include your credit score, the length of your loan and the rates the particular lender tends to offer. Naturally some lenders have more competitive rates than others. APRs tend to be higher the shorter the loan period also, so you must always take that into account.
Your credit rating
Although there are anomalies like the examples mentioned above, fundamentally your credit score assesses the rate that you pay. This is perfectly highlighted by the cost of personal loans and credit cards whereby customers with better and stronger credit histories will receive lower interest rates and closer to the ones advertised.
