Loan applications – what rate?

The introduction of “personal pricing” into the loan market has caused confusion for the consumer regarding exactly what rate they’re likely to be quoted when it comes to a loan. Add to this the fact that if they fish around for quotations for alternative rates they’ll be penalised for making too many loan applications and the state of affairs is far less then satisfactory.

HSBC, Barclays and the Halifax have adopted this personal pricing policy, It used to be the norm for a typical rate to be advertised, but now what you get offered is a personal deal based on your credit history. Deals advertised by other lenders may show a low APR but a check of your credit history might result in uplift in this rate.

Whenever you make an application for a loan, lenders will apply to a credit-reference agency and depending on the report which they receive they’ll make the decision regarding the rate at which your loan will be offered. Or maybe they’ll make the decision not to offer a loan at all!

You can make your own application to one of these credit reference agencies. It’ll only cost you £2 and it’s surely worth that to find out just what your rating is. It could be that there’s a mistake on your record – something which can easily be sorted out by contacting the agency.

Too many credit applications showing up on your record will make lenders wary of lending money. These applications show up as “footprints” incidentally. This makes it very unfair if all you’ve been seeking is the best deal.

There is a way to solve this. Making a “quotation search” would enable a lender to have a look at your file, assess your risk profile and inform you of their interest rate offer. This would show on the records as a quotation search, rather than an application and would not leave “footprints”.

That would seem to solve the problem then? You’d imagine so, but in fact the big banks have not adopted the method and don’t offer their customers this choice.

Experian, one of the two major credit reference agencies claims that they have sent details of the quotation search, introduced back in 2004, to a wide range of lenders and have ensured media publicity. An explanatory leaflet which they send out to would-be borrowers puts emphasis on the point that they need to clearly explain that they are merely asking for a quotation of interest rate, on which to base their possible application.

The banks claim that the costs of offering this service would be costly and would involve new software and staff training. They also say there has been little consumer demand for it.

It may well be that if more people were aware of the product, then the banks would find a very different response.

Consumer group Which? claim that the current system is not in the consumers best interests. They would prefer to see companies offering quotation searches as part of the marketing process. A spokesman for the Banking Code Standard Board states that they will take a sounding of members to see if this is a major issue. If so, a review could be appropriate.

What consumers need is to be told exactly what the interest rate would be before they make an application for a loan. By using a quotation search, this would seem to be entirely possible, without any detrimental affect on their personal credit file.

Go on line for help with this. Rather than apply to an individual lender, you be better advised to find a broker will be up to date on the situation and can offer advice on getting an assessment of your risk profile, finding the right lender and getting you the very best deal.