Why didn’t I get the rate advertised for my loan?
Have you recently applied for a loan product, such as a bridging loan, guarantor loan or personal loan, and have ended up not receiving the Representative APR rate that you had seen advertised?
This can leave some borrowers very confused as to why this has occurred when they end up receiving their ‘SECCI’ or loan contract, and see that they did not get the website rates. This can be especially the case if you have homeowner status, good employment with a steady income, as well as a strong credit score – all of which are often mentioned as being extremely important when it comes to loan applications.
However, there can be a number of reasons why. In this guide, we will break down exactly why you may not have received the Representative APR for your loan.
The Representative APR explained
First of all, it is particularly important that you thoroughly understand exactly what the Representative means. For example, where you aware of the fact that the representative APR is only available to 51% of successful loan applicants, as in line with The Consumer Credit EU Directive.
Understanding this directive is vital, as it can help you understand why it is a fair approach. Why? Because the directive essentially implies that lenders will have to give the advertised rate to just over half of the people they grant loans to.
On the other hand, it does also mean that a lender does not have a legal obligation to give you the representative APR, if you happen to fall with the 49%, and that could mean you have a considerably higher rate.
What is the typical APR?
Another thing you may have seen on loan websites, and also important to understand, are typical APR rates. What exactly are these? The typical APR rate refers to the rate that needs to be provided to at least 66% of all successful loan applicants.
The rate you can get under typical APR can be dependent on different variables. These may include the duration of your loan as well as your credit score, alongside the lender you decide to choose to get a loan from.
It is also worth mentioning that whilst APR may seem very high (for example, a payday loan) this needs to be taken into perspective. This kind of short-term financing has a high APR purely because it is only meant to last a very minimal amount of time. That means that the APR becomes compounded, making it appear a lot higher than it actually is, providing that you pay on time.
Understanding affordability checks
You may also not get the representative APR as a result of additional affordability checks. Lenders always check extremely carefully (especially as a result of FCA regulations implemented in recent years) to ensure that the ratio between your debt and income, in order to determine if you can afford your loan.
To make an accurate assessment, the lender in question may request your monthly expenses on things such as your existing mortgage, rent, as well as credit cards.
If too many liabilities are picked up on during these affordability checks, then this can lead you to end up receiving a different APR than advertised. This could be due to you as a borrower having other financial commitments which ultimately present you as somewhat as a risk to the loan provider.
Do preferential rates exist?
It has been known that banks can provide preferential rates to loyal customers. This could be because of bank accounts that they have had with the company for an extended period of time. It could also happen if the borrower is taking out their second or third loan with the same provider, and have shown themselves with previous loans to make prompt repayments.
Can I ask why I received a lower rate?
Yes, if you received a lower rate than you had been expecting, it is possible for you to ask the lender why that ended up being the case. You are allowed to do this as part of the EU directive that was previously mentioned. You will receive a response in writing.
