A survey from online bank Egg reveals that many lenders advertising low "typical" lending rates on loans and credit cards actually charge most applicants far higher rates.
A recent mystery shopping exercise from the online bank Egg
(LSE: EGG)
has revealed that the "typical" interest rates being advertised prominently by several major lenders are, in fact, given to very few applicants.
Egg commissioned market research group NOP to scrutinise rivals Abbey National
(LSE: ANL)
, Barclaycard, Capital One and Lombard Direct. Fifty researchers telephoned for a loan or credit card with each of these four lenders, making a total of 200 calls. These calls revealed that only a tenth of applicants were offered the low headline rates, with the majority asked to pay considerably more.
Capital One fared best, with 16 out of 50 (32%) of callers being offered the best rate of 11.5% for its "No Hassle" Platinum credit card. Barclaycard offered only 2 out of the 50 callers (4%) its best card rate, the same number as were offered Abbey National's cheapest loan rate of 6.6%. Even worse, Lombard Direct's blue talking telephone didn't offer a single applicant its best loan deal of 6.9%!
Overall, the average rates offered to the researchers varied between 2% higher than those advertised at Abbey and Lombard to a whopping 6% higher at Barclaycard. On the surface, it appears that these lenders are flouting the Office of Fair Trading's (OFT) advertising guidelines. These rules require lenders offering individually assessed rates to advertise their most popular rate prominently.
Although these four lenders were quick to deny Egg's claims, quoting their own internal lending experience, the OFT should establish if they have a case to answer and then act quickly to stamp out this practice. This is because it misleads borrowers who are shopping around for the best deals, since only a small fraction of applicants are offered these highly attractive headline rates.
Personally, I've always suspected that there was more to "typical APRs" than meets the eye, as I've never been offered the best "individual" rate, even at times when my credit rating was first class. Industry whispers that hinted lenders were using these rates to suck in naive borrowers also supported my hunch.
So, if you're shopping around for a loan, make sure you check what rate you're actually getting before signing on the dotted line.
More: Read our Top Ten Loan Tips and take a look our Personal Loan and Credit Card Centres.
