Northern Rock Rip Off

Rafter

Have a look at Northern Rocks pricing strategy.

Headline rate of 5.6%

That means on a loan of £7,500 over 5 years they will charge £1,100 in interest.

Northern Rock is a big bank and can probably borrow that money at around 4.75% on the money markets. They will pay interest of £900 on the money over 5 years.

This gives total net interest for them of £200 or £40 a year - not exactly a big margin and certainly not enough to cover all their staff, computer systems and the 3%+ of customers who default on their loans each year.

But if you can charge £45 for a chaps transer you have probably doubled your profit in the first year - not a bad start.

Now 50% of your customers are going to sign up for Payment protection for which you are going to charge £1800 at a 70% profit margin or £1,250 profit.

Now you are talking, you have just increased the profit per loan from £200 to £1,450 - a 625% increase.

Now assuming that 50% of customers take PPI and 50% of customers take the express payment charge, you make an average profit of £850 a loan or £170 a year.

So 50% of your customers make you £200-210 a year, and 50% make you £1,450-1,460 a year. Messed up pricing eh? But probably no different from a 10p can of value beans at Tesco and a 60p can or organinc beans, or a £1 flight on Ryanair for one passenger and £100 for someone who only booked yesterday.

Now, if you roll that into the APR calculation you get the following:

Customer who declines ppi and doesn't go for quick settlement 5.7%

Customer with quick settlement 5.9%

Customer with PPI and no quick settlement 14.5%

Customer with PPI and quick settlement 14.8%


So the average customer pays an APR equivalent of 10.2%, which doesn't make Northern Rock look quite such good value after all.

In fact with payment protection, you would be better off with Nationwide, Lombard Direct or Tesco than Northern Rock even though their advertised APR is much higher.

Problem is, consumers love thinking they are getting 'value for money' and companies like Northern Rock will use every trick in the book to keep their advertised prices to a minimum and then adding on the extras.

What would be fairer is for customers to only pay a £550 premium for insurance. Northern Rock would then have to charge an APR of 8.8% to stay profitable.

Although a big group of consumers would benefit from not being ripped off on PPI, smart borrowers would end up paying more, but not being subsidised by people taking out insurance.

I think I'll call this the 'moneysavers dilemma'. Do we moan about the hidden charges and tricks that enable the smartest moneysavers to get subsidised borrowing from customers who aren't so savvy?

R.

Robert_Sterling_3

I tend to both moan and stooz thus getting the best of both worlds

barney_1972

I applied in branch for a £8000 loan over 10 years at 5.6% apr and was accepted with loan protect gold PPI at an additional cost of £4000.

No mention by the advisor of alternative BACS transfer or the different levels of PPI cover available (Bronze, silver....)

Told the advisor i'd sleep on it.

Seen this site, rang back a day later and informed him i would like the loan but with a few amendments
1) No loan protect - i'll get it elsewhere
2) Fund transfer by BACS instead of express.

Advisor was speechless....i reckon he'd already counted and spent the commision he was set to make of the PPI!!!!!!

He replied he'd never heard on anyone that did'nt want the PPI and the BACS fund transfer could not be done.

Stuck to my guns though and the application was posted to me with BACS handwritten on the return envelope. I also wrote BACS on the top left hand corner of the application/credit agreement.

Just rang NR main unsecured loans line and had this confirmed.
Money should be in bank by Friday.

Wow - this site saved me a SHEDLOAD of dosh!!!!!!!!!!!!!!!!!!!

Many Thanks

cynicalmiss_2

I also got caught out with the £45.00 charge to have the money transferred into my bank account. I rang up and complained about the rather sneaky way they inform you of the charge I also complained that the T&C's don't tell you its gonna be £45...it states an administration fee. After locking horns with the customer adviser for over 15 mins and accusing him of being sarcastic and patronising ( which he was ) and pointing out that in the 20 mins hard sell I had to endure from salesman trying to sell me the PPI, one minute could have been used to inform me of the charge and the other ( cheaper ) method of getting my money i.e BACS. The accusation of sarcasm and patronisation got me the desired result....my money back.
However I did have to wait 3 weeks for it...but get it I did.

Phantom_Flan_Flinger

Can't say I had any such problems when I applied.

I already had a NR loan but wanted to increase the amount (to £10500). This meant a whole new loan, which I done over the phone.

The guy I spoke to did try to push the PPI, but I declined. He asked a few more questions but once I said I was sure I didn't want it he moved on.

He also explained the options for the money transfer. He told me of the £45 for the express transfer, or I could just wait a few more days to get it for free. I took the free option and that was that.

barney_1972

Thought i might also add though......

The 'Who uses you' on the credit agency list shows that Northern Rock use Experian for credit scoring.

I checked credit file with both Experian AND Equifax after my application and there was only a seach on the EQUIFAX credit file.

Incidently my loan application for same amount with Nationwide who use Experian failed.

Food for thought!

glitter1007

Happy ending - I complained to customer services at Northern Rock who after pointing out what a prat I was for not reading the small print (fair enough) have refunded the £45 charge. In future I will pay more attention. I still think having this fee as a default option is outrageous though. :j

Holeypockets

my comments on Northern Rock - with no axe to Grind..

I have just applied for a 10.5K loan and found them very easy to deal with. I did the application online. The 5.6% rate is great. I don't want PPI and was not pressurered into taking it at all. I haven't been stung by the £45 charge, but the money went into the bank so quickly I am wondering if I will get charged. I checked the back of the agreement and there is nothing about having to put it in writing to avoid the charge. I am assuming NR have cleaned up their act. I must say, I am personally impressed because the good interest rate has saved me a cart load, I was half expecting a hard sell on the PPI but got non whatsoever. If I do get the £45 charge I will follow up this message.

Tr@cker

I made my application and was accepted at the advertised rate within just a couple of days. To be fair 5.7 is a really good deal and im tempted to say anybody who couldn't be @rsed to read the forms properly gets what they deserve, some people might want the money quicker than others as they may miss out on something that would save them a lot more than 45 quid.