Loan Rates
Are some bank loans a Rate-trap?
Summary: When enquiring about a personalised loan interest rate you may well be gaining a footprint on your record which will increase future rates offered.
Make the customer feel special and convince them that they are getting a deal which is only available to them. It is an old sales ploy which has been used in many different situations and is world-wide in its acceptance, and it generally works very well.
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But would you be surprised to find out that your bank had been guilty of this, despite the fact that it goes against the requirements of the Consumer Credit Act?
This act lays down some fairly strict rules which lenders are obliged to follow. The particular section which applies in this case is the requirement that 66% of those responding to a loan rate advertisement have to be offered their loan at the advertised annual percentage rate (APR).
The only trouble is that compliance is supposed to be policed by the Office of Fair Trading (OFT), but they admit that, whilst they may follow up a direct complaint, they do not carry out any monitoring of day to day transactions. The reason given is that the sheer volume of loan agreements which are entered into and the number of companies involved is too great to be dealt with by direct checks.
Amazingly, they say that they depend on information being supplied by those applying for loans. This ignores the fact that individuals would be unlikely to have information relating to any loan application but their own, and could not therefore be aware that there was any potential malpractice to be reported.
So exactly how do finance companies and banks get around the requirements of the Consumer Credit Act? Whilst advertising loan rates and clearly quoting an APR, they will contact known potential customers and offer them a personal rate which has been 'calculated to meet their specific needs'. In enquiring about what this rate will be for them, they are not answering the advertisement carrying the APR rate details, but are responding to a direct offer.
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