Loan offers to Avoid

Leave some loan offers alone

Summary: An offer of a loan at a 'personal rate' may not be all it seems, and should be approached with great caution.

The Consumer Credit Act (CCA) lays down some pretty strict rules for lenders, and the lenders for their part search for loopholes which can be used to their advantage. That is the way some people are led by what is called human nature.

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In a similar way many people allow themselves to be bamboozled by jargon, or don't even read the small print which encapsulates the jargon. Few understand the laws relating to loans, and with the complex legislation which governments and lawyers dream up these days, it would be a very determined person who could come anywhere near to understanding them.

The fairly inevitable result of these two facts is that borrowers end up being misled by potential lenders.

One aspect of the CCA which is being circumvented is the responsibility placed on lenders to show the typical or average cost to the borrower of a personal loan. The Act requires that at least 66% of applicants for a loan who respond to an advertisement, must be offered the APR (annual percentage rate) shown in the advert.

The loophole which is exploited here is that the lender does not push the sale of a typical loan rate, but instead contacts a potential borrower with an offer of a rate which is personal to them. This inevitably makes the customer think that they will be offered a very competitive rate and they submit an enquiry. The lender then does what they would do with any other borrower - they carry out a credit check and then make an offer. The trouble is that credit checks leave 'footprints' on your record, and the more footprints, the higher the rates charged; this is simply because they are regarded as an indication of your having searched for credit.

But getting back to the original advert. Surely you would be safe in demanding the advertised rate, which would be covered by the Act? Well unfortunately, no you wouldn't. If you don't get the advertised rate, how can you be sure that you are not one of the 34% who don't have to get it? Quite simply, you can't.

The Office of Fair Trading (OFT) admits that due to the proliferation of companies and rates, it cannot handle the checks and depends on consumers to let them know if there is anything wrong. As stated above - how is the consumer to know how many borrowers are offered the advertised rate?

some loan offers may not be all they seem initially