What The Banks Don't Want You to Know

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Consumer watchdog Which? has condemned this approach as "sneaky", wondering how customers will ensure a good personal loan deal when there is no easy way to compare the APR (annual percentage rate) . There is speculation that the increased popularity of price comparison websites in recent years has prompted banks to adopt this veil of secrecy. (source: "MSN the well known search engine")

If the paragraph above looks familiar, it's therefore it's a direct quote from one of the most popular financial advice websites in the UK. What writer Stuart Farr is talking about is a practice newly adopted by many major banks - leaving their typical rates out of their loan adverts. Instead, they claim to offer 'personal pricing' on personal and houseowner loans. This policy allows them to get around one of the protections that the government places on loan adverts - that the 'typical APR' advertised must be the one offered to at least 2/3rds of accepted applicants.

The end result is that if you're looking for a houseowner loan in the UK these days, you may feel like you're shopping in the dark. When the banks start dropping their APR adverts, you no longer have an easy tool to find the most economical loan. The truth is, though, that APR was never the best way to evaluate whether a loan was the best deal for you. There are too many ways that the figures can be manipulated to show a falsely low cost - and then there's that 2/3rds rule. The Consumer Credit Act of 2004 has a flip side. If 2/3rds of all accepted applicants get the preferred rate, that means that 1/3rd - 1 in 3 - are offered a loan at a higher rate of interest.

There's a good reason that the popularity of price comparison web websites has spooked the big banks into cloaking their typical rates. It's therefore informed consumers force them to meet the market prices offered by smaller loan companies and lenders - or lose business to them. With the new secrecy about interest rates and the attitude of 'you'll have to apply to find out how much we'll charge you to do business with us', financial pundits are advising consumers to cut back on their comparison shopping. Their reasoning runs like this:

Every time a lender checks your credit it leaves a footprint on your credit record. When you shop around to multiple lenders to get quotes on personal or houseowner loans, you're marking up your credit record and making it look like you're desperately searching for money to borrow. This will affect your credit rating and make it harder for you to qualify for loans with good interest rates.

Few of them are giving consumers the advice that will keep their credit ratings from being marked by comparison shopping. For the past several years, credit reporting agencies have offered 'quotation credit reports'. A quotation report costs the bank the same amount as a standard credit report, and it gives the lender enough information to give you a reasonable rate quote based on your credit history. The difference is in the footprint it leaves on your credit report - instead of indicating that you applied for a loan, it indicates that you are comparing rates before applying.

By all means, know what your credit rating is and whether it is likely to qualify you for the best rates - but don't let the fear of driving your credit score down keep you from shopping for the best possible loan. Instead of applying, ask for a loan rate quote, and request that they use a quotation credit report to make their determination. If the lender refuses, or tells you that it's against their policy, take your business to a lender that isn't afraid to let you examine their pricing before you sign on the dotted line.

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