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Why is it Harder to Get a Money Loan Credits
Why it's becoming harder to get a loan? A new pricing strategy by the country's biggest personal loan provider could make it even harder for people to find the best deal.
Lloyds TSB has changed the way it prices loans. Rather than advertising a rate which is offered to the majority of successful applicants, it has moved to a personal pricing strategy.
What is personal pricing?
Personal pricing means would-be borrowers will no longer be able to see the typical rate being offered by the bank - they'll have to apply to find out what kind of deal they'll be given.
Those with good credit histories will be offered the most competitive rates. But if the bank thinks there's a risk you could default on your repayments, you'll be charged a higher rate of interest.
This isn't unusual. Lenders always run a credit check when assessing a loan, credit card or mortgage application. However, most advertise a 'typical' rate - this must be offered to at least 66% of successful applicants, which at least gives you some idea of how much the loan will cost you before you apply.
However, by moving to personal pricing, Lloyds TSB will stop advertising a typical rate. Borrowers (who must also be existing customers) will have to apply in order to see what kind of deal they'll be offered. And every time a credit check is made on you, a mark is left on your credit file.
Recently, a Treasury Select Committee criticised the way the market works - even among lenders that advertise a typical rate.
Multiple credit applications can have a negative impact on your credit score, making it harder for you to shop around for the best deal. You can read more about that and the committee's concerns in our article 'Pressure mounts for fairer credit applications'.
Without even a typical rate to guide borrowers, Lloyds TSB's latest move may make it even harder for customers to find the best deal.
Tim Moss, moneysupermarket.com's head of loans, is worried about the effects this could have on the market.
"This is going to mean many borrowers end up blindly applying for a loan. Lots of people prefer to apply for a loan through their current account provider because they trust whoever they bank with to give them the best deal.
"Lloyds TSB may well be offering some customers the best loans rate but they won't be able to check that before they apply. I can't help but think this is a real step back for consumers and the loans industry."
Silver lining
It's not all bad news for those looking for a loan. Nationwide has just unveiled its new market-leading personal loan with a typical annual percentage rate (APR) of just 7.6%.
However, there is a catch. In order to qualify for Nationwide's market-leading deal you have to have a current account with the building society.
As mentioned above, Lloyds TSB's loans are also only available to current account customers and we're seeing an increasing number of providers adopt this approach. The reason for it is that they have an existing relationship with these people so can make a better-informed lending decision as the bank or building society already knows how they manage their accounts.
So what are the other options?
There are still some competitive deals out there that don't require you to have an existing relationship with the lender.
For example, if you have a really excellent credit score then Alliance & Leicester is offering a typical APR of 7.8% on loans between £7,500 and £14,950. Sainsbury's are offering a rate of 7.9% on loans above £7,500, but you must have a Nectar card to be eligible. However, they're free and can be applied for online.
Tesco is also offering a competitive rate on loans between £7,500 and £15,000 of 8.4%. Again though, you'll need an excellent credit score to qualify.
Could a credit card be better?
Of course, depending on the amount you would like to borrow, a credit card might be the better bet. There's greater flexibility when it comes to repayment and there are even some introductory interest-free deals.
However, as part of the fall-out of the credit crunch, many providers have reduced the amount they're prepared to lend on credit cards. If you have a good credit history anything up to £3,000 should be ok. But if you are looking to borrow more than that, don't bank on a credit card as you may not be offered a high enough credit limit.
Ahorre January 19, 2010 11:15 AM