Many borrowers are left confused as to why they did not get the advertised rate for their loan. Especially if you have a strong application with a good credit score, stable employment and income, and homeowner status.
Getting a rate worse than that which was advertised can be quite a surprise for consumers. Logically, the borrowers with the strongest credit scores should be entitled to the best rates, as their affordability profile is more trustworthy than those with bad credit. This means there is less risk for the lenders providing the loan, as it’s more likely that the borrower will be able to keep up with repayments.
In addition to this, rewarding those with the strongest credit scores and affordability profiles can also act as incentive for the borrowers with bad credit, as it can motivate them to improve their rating to access better rates.
What Representative APR Really Means
It is worth knowing that only 51% of successful applicants will be able to get the representative, advertised APR. This is deemed a fair approach, as it shows that the lender is providing the rate advertised to over half of its borrowers.
As with the other 49%, the lender is under no obligation to give this advertised rate, or even close to it, meaning borrowers falling in this category could end up paying a considerable amount more.
As well as the representative APR, there is also a typical APR that may also be shown. Lenders are obligated to provide this rate to a minimum of 66% of their borrowers. Your credit score could affect the rate you are given, however it can also go on the length of the loaning period, and the lender you are applying with.
Rewards for Loyalty With Lenders
It has been claimed that some short term and payday lenders will reward loyalty, offering recurrent borrowers better rates. For example, borrowers who have taken a second or third loan out with the lender. This is only provided that they maintain their affordability profile, including their credit score, stable employment/income, and have a good borrowing history with the lender.
Another example of where loyalty can be rewarded is taking out a loan with a bank. Borrowers who have an account with the bank that shows a healthy history of financial management could have access to great rates. Especially in comparison to those who hold accounts with that bank’s competitors.
Affordability Checks for Loans
There are numerous different reasons why you might not get the advertised representative APR with your loan, one of these being the additional affordability checks.
When conducting an affordability check, direct short term lenders will look through various aspects of your finances to see whether you have any existing financial commitments, and subsequently the likelihood you will be able to keep up with repayments on the loan. This may include details of monthly transactions, with bank statements to back this up.
If the lender concludes that you are high-risk to lend to, they may either not lend to you at all, or give you a worse rate than that advertised due to the element of risk. Therefore, existing financial commitments can play a major role in the rate you get for your loan.
Asking the Lender Why
Thanks to the EU Directive, you are allowed to ask the lender why you were either rejected for the application or did not receive the rate expected with your loan. Whilst the lender will not provide this information right away, they are obligated to write a formal letter listing the reasons why you did not receive this rate.