Did you know that with some lenders you might end up paying more for your loan than is shown on their website, leaflets, and loan repayment calculator?
How does this happen?
The advertised “representative” example including the APR and repayment amounts quoted by a lender only needs to be offered to at least 51% of applicants. Therefore, nearly half of people being offered a loan could be at a higher rate. This allows some organisations including many banks to charge more to borrowers they consider a higher risk. This does not happen with Just Credit Union who treat all members fairly and equally with rates based upon the amount borrowed.
What is the difference between the real rate and the representative rate?
The representative rate is used for advertising purposes which can mean only about half of the applicants are actually eligible for it. The real rate is the amount that you’ll actually pay based on your circumstances. This real rate could be much higher than the advertised representative rate. This is often the case if you don’t have a well-established credit history, or are rebuilding a poor credit past.
What can I do?
- Be aware that with some lenders you may not be offered the representative rate that is advertised. A higher rate is more likely if you have a poor credit history, lower credit score or limited disposable income. Just Credit Union does not charge higher rates and offers all member a fair and equitable rate based upon the amount borrowed.
- Before you make a final decision ensure that you know the real rate that will apply to you.
- Compare offers making sure you are comparing like with like including the amount borrowed, the number and frequency of repayments and any additional fees or penalties that might apply.
- Work out the total amount repayable for each option and compare the total, make sure you have added together all the repayments and any additional fees or charges that might apply.
- Always check any loan documentation before you sign it making sure you know exactly what you will repay and when.
Why may mean my real rate is higher than the representative rate?
There are a number of factors that could impact the real rate you are offered if any of these main factors apply to you be particularly careful and check the real rate you are offered:
- Credit history: A lower credit score and any history of late payments or defaults will usually lead to a higher rate.
- Current financial situation: Lenders will likely assess your current regular income, your savings and outstanding debts, and credit utilisation when determining your real rate. Limited disposable income or other borrowings may result in a higher rate.
- Not a homeowner: This can also result in a higher rate.
- Employment status: If you are not a permanent full-time employee with a stable job history this may result in a higher rate.
