Lenders often use the term 'typical APR' when offering low-cost personal loans. But does it mean you'll get that rate?
In the post this week I got a very nice circular from my bank offering me a personal loan at an interest rate of 6.2%. Apparently, because I'm already a current account customer, I don't have to worry about answering lots of questions or fill in any forms - and I can spend the money on anything I like if I want to.
Now, I don't want or need a personal loan but occasionally I read through these things for a bit of fun, and, in fact, it's not a bad rate as things go. But, after digging out my magnifying glass, it turns out that not only would I have to borrow at least £7,500 to qualify for it, the even smaller print implies that the rate might vary depending on how I apply for the loan!
To be precise, the really teeny print states:
From time to time we may make special offers to selected customers. We consider a combination of factors when doing this, these include your past account history, your past credit history and any other personal details we hold. Personal loan rates are not available though all our distribution channels and the rate, repayments and products may vary depending on how you contact us to apply for your loan.
What this all boils down to is that the bank may or may not lend me the money at their best rate of 6.2%. A clean credit history might not be enough. For example, if they think I'm likely to pay off the loan early - and more than 70% of people do - they could charge me a higher rate. Otherwise, they won't make so much money out of me in spite of early settlement penalties.
At the moment, when lenders promote an enticingly low 'typical APR', they only have to offer it to 50% of customers who apply (it'll be 66% from November onwards). This is why some people, even those with an excellent credit history, are sometimes surprised to be told they don't qualify for the 'typical' low rate. It's because the lender doesn't necessarily think they're that good a business proposition.
The point is, check that you really are going to get the best rate when you make an application for any personal loan quoting a 'typical APR' - before you sign on the dotted line.
Find the right loan for you in our Personal Loan Centre.
