A Cheap UK Loan | Money Plans Car Loan Legal Expense Cover
A Cheap UK Loan | Money Plans

A Cheap UK Loan | Money Plans

A growing number of providers are switching towards a risk based lending approach, and the need for independent regulation to confirms that 66% of consumers accepted for borrowing are receiving the advertised typical rate.

As if shopping around for a personal loan or credit card is not complicated enough with varying terms, conditions and rates, consumers should also be aware they may not receive the headline rate which may have initially attracted them.

Most recently we have seen two big household names adopt the risk based pricing approach, firstly, Sainsbury s Bank moving their cards away from fixed pricing. And secondly Egg s personal loan pricing is no longer a one price fits all scenario.

With 80% of loan providers already adopting typical rates, the cards market seems a little way behind with only 35% of providers pricing this way. However, with the need to stem the tide of rising bad debts, but at the same time increase interest income, card providers may soon to move towards this type of pricing structure, which better reflects the risk involved.

Surprisingly, Cahoot is the only provider to initiate this approach on overdraft rates. Seemingly a fairer deal for some consumers who may benefit from rates at 9.8%, 2% lower than their typical rate, while the upper limit stretches to 14.8%, a rate at a level often seen within the current account arena.

The CCA guidelines state that 66% of consumers accepted for a personal loan or credit card should receive the typical rate; however until now, there is no evidence that this rule is being adhered to.

If there is no visible evidence that this rule is being monitored by the OFT, then the rules are open to potential abuse, which would be detrimental to consumers.

With the latest OFT report focusing on reducing penalty fees, a substantial source of income for lenders, risk based pricing could provide an alternative backdoor way to increase revenue, by advertising low rates to attract consumers, but with much higher rates being charged to more than 33% of accepted applicants. In other words a flexible lending approach, which could be steered more towards profit rather than risk.

Consumers should be aware they might in some cases pay a premium of a few percentage points over the advertised rate but there are two sides to the coin, as some will be lucky enough to be offered a rate lower than the typical rate. It will depend on a combination of the individual s credit rating and the provider s score card.

For consumers to know the rate they will pay, a credit application must first be processed, so for those chasing the best rate available, the market has become much less transparent.