Advice on loan rates

yummymummy_2

We have just been accepted for an A&L loan, however they have offered it to us for 12.9% APR instead of the "typical" rate they advertise (5.8 or something). Our credit history is very good and it seems annoying that you have to apply, and your credit rating has to be affected before you can even know what they are selling you.

Anyway, my question is, should we apply for a different loan or just stick with this one?

Astaroth

It is up to you.

The loan rate is affected by the amount you want to borrow, how long you are borrowing it for and your credit score/ history (though every lender has their own rules for what is good or bad on this score so what one company sees as amazing another may only see as good)

It is a pain not knowing the loan rate up front but then they tend to have a much higher accept rate than those that have a single fixed rate irrespective of the other two conditions as they vary the acceptability criteria instead of the rate (so low loan amount over short time requires a much better credit score with fixed apr companies than a mid amount over a mid duration)

yummymummy_2

Thanks for your reply. The application form for this loan was much less detailed than others we have used in the past. I'm not sure whether that makes any difference. If you apply again straight after the first application I suppose it might appear that you had been rejected (as they don't know the outcome).

Astaroth

You can of cause query the rate with the original lender and they may be willing to adjust it - can be that if you increase the borrowing amount or repayment period that they would be willing to give a lower rate.

Most borrowers will see multiple searches by the same company within a short period as all being related to the same applcation and so it shouldnt have any further affect on any applications to other companies but as I say, all companies have their own rules and so it may with some lenders.

grumbler

I think you have nothing to lose in this situation. Credit searches stay on your credit files for 12 months and after 3-6 months affect your credit rating very slightly. Also, Martin's advice is:

Get quotes without applying. There is a distinction between a 'credit enquiry' and a 'full credit check'. The latter goes on your file, the first doesn't, so if you just want a quote, get one, but ensure you ask what type of checks will be made.

Credit Rating > Check and improve your Credit Score

yummymummy_2

ok - thanks for your advice. I will see what my husband thinks when he gets home.

One other thing - is it usual for them to increase the interest rate within the time you are making repayments? The loan we applied for was advertised as "fixed rate"

Astaroth

Most unsecured loans under 5 years are fixed rate... the other option of cause is a variable rate mortgage which they will typically say will stay within x% of the base rate.... so if you think inflation is going to drop then variable is good. If you think inflation will increase then fixed is better - with fixed you also know exactly what you will be paying so makes budgeting easier.

mrcow

IMO don't do it.

How much are you looking to borrow and over what period?

If your credit rating is good, you can do alot better than 12.9%! The Post Office/Cahoot/Egg would all beat that I'd be sure, try looking at moneysupermarket.com for a comparison (I'd ignore Northern Rock personally even if they come out as a lower APR as it probably won't be as they have a bad habit of insisting that their expensive PPI is taken out).

If it's a reasonable enough amount, you can also look into 0% credit cards and balance transfer at the end of the period onto another (there's usually a fee for this, but it often beats any APR that you would otherwise be paying).

yummymummy_2

We asked for 6K over 5 years. We actually wanted 5K but applied for 6K because it has to be more than 5 to qualify for a lower rate of interest.

mrcow

yummymummy wrote:

We asked for 6K over 5 years. We actually wanted 5K but applied for 6K because it has to be more than 5 to qualify for a lower rate of interest.

lol don't borrow any more than you need to!

According to moneysupermarket.com, Direct Line are offering 5.6% on an internet loan of this type: Total payable £5725

Their telephone loan is 6.1%, but again they are guarenteeing that you'll get this rate if accepted, ie: there's no extra rate for risk. It may be worth giving them a call on 0845 246 8163 to check that this is correct before you apply.

Obviously, this is just an example, go with whichever company YOU feel comfortable with. Just make sure you work out beforehand exactly what it's going to cost you over the total period, don't be sold any expensive PPI and make you you know up front what (if any) the redemption penalties will be.

Just so you have the maths to hand, if you were to take out the £5000 A&L loan an 12.9% (I'm not even basing on the £6k!!!), the total amount payable over the five years will be £6702! If you go ahead and borrow the £6k as they want you to, you're going to be paying them back £8043 in total.

Please don't sign up with A&L and give them an extra £1000 of your money (comparing the Direct Line loan) without at least looking at all your options.

Take care and good luck.

yummymummy_2

We decided not to take this loan but A&L just phoned us and said we could have it for 6.9%. This doesn't seem too bad and I'm inclined to take it, but could they change the APR over the term that we have taken the loan?