MSE News: Loan market perversion: borrow more, pay less

Former_MSE_Natasha

This is the discussion thread for the following MSE News Story:

"UK loans have hit their highest rate for nine years, with differences in rate tiers so wide, oddly, it now pays to ensure you check whether its actually perversely cheaper to borrow more money than you need..."

Read the full story:
Loan market perversion: borrow more, pay less

(This story will be made live at midnight 27 Feb)

jonesMUFCforever

This is hardly new news - it has been this way for a number of years!

I don't know if Martin Lewis has any primary school age children but they could do a lot better than some of the MSE'rs who post useless ''news'' articles for discussion.

MSE_Martin

jonesMUFCforever wrote: »

This is hardly new news - it has been this way for a number of years!

I don't know if Martin Lewis has any primary school age children but they could do a lot better than some of the MSE'rs who post useless ''news'' articles for discussion.

Of course tiered loans have always had an impact at the margins. The difference currently is that loans have hit a nine year high - and with small loans as such a disproportionately high rate compared to higher amounts rather than it making a difference if you at £10-50 from the tier - it is now cheaper if you are £500 from the tier.

This is an unprecedented gap and well worth a news story. While you may feel this is obvious I think to presume everyone realises that is more than a touch unfair.

In the discussion on this on my facebook page - a few people make the point that "if you borrow more you get a lower rate on mortgages too" and its exactly that confusion i wanted to highlight.

The point here isn't "borrow more and get a lower rate" it is "borrow more and PAY less" I do note believe many (outside those who follow the subject closely) realise that, and indeed empirically they don't do the maths.

Your argument could equally follow that we shouldn't tell people "unsecured is better than secured", "beware lenders PPI", "borrow over a shorter period" - these too are all I am sure 'obvious' to you. Yet they're not obvious to most people.

This is an editorial comment based on the fact research this week showed loans at a nine year high - its a timed story, of relevance.

NOTE A FEW POSTS BELOW HAVE BEEN DELETED FOR BEING OFF TOPIC - PLEASE STICK TO THE TOPIC

jonesMUFCforever

MSE_Martin wrote: »

Of course tiered loans have always had an impact at the margins. The difference currently is that loans have hit a nine year high - and with small loans as such a disproportionately high rate compared to higher amounts rather than it making a difference if you at £10-50 from the tier - it is now cheaper if you are £500 from the tier.
With defaults running at around 10% if you believe what the Lloyds banking group results show it is not surprising.
This is an unprecedented gap and well worth a news story. While you may feel this is obvious I think to presume everyone realises that is more than a touch unfair.
What is the news story here then?
In the discussion on this on my facebook page - a few people make the point that "if you borrow more you get a lower rate on mortgages too" and its exactly that confusion i wanted to highlight.
I am not a member of your Facebook group so cannot comment - do they post on here as well?
The point here isn't "borrow more and get a lower rate" it is "borrow more and PAY less" I do note believe many (outside those who follow the subject closely) realise that, and indeed empirically they don't do the maths.
The total cost of any CCA regulated loan agreement shows clearly the total cost including interest - it is fact that the lower the APR the lower the total cost charged ie interest.
Your argument could equally follow that we shouldn't tell people "unsecured is better than secured", "beware lenders PPI", "borrow over a shorter period" - these too are all I am sure 'obvious' to you. Yet they're not obvious to most people.
Reading below surely this is off topic?
This is an editorial comment based on the fact research this week showed loans at a nine year high - its a timed story, of relevance.
One sided and poorly researched - an editor should have a balanced approach - there are always 2 sides to a story.
NOTE A FEW POSTS BELOW HAVE BEEN DELETED FOR BEING OFF TOPIC - PLEASE STICK TO THE TOPIC

Thank you Martin for the personal PM.
I would respectfully suggest if you do not like open discussion then you should start moderating posts.

cannonballdaze

It's economies of scale at work - the banks amortise the administration costs over more cash borrowed - hardly a surprise ?

[Deleted User]

While I accept this is great of MSE to raise this as a news story, is it a sensible tactic given - as you say - some people's lack of understanding of this issue.

Some people will no doubt interpret what you've just said as 'borrow more and pay less'. Shouldn't MSE's stance be 'don't borrow where possible' even if this means you end up paying more interest short-term? Or, in other words, shouldn't MSE start from the basis of the consumer not always being able to control their borrowing?

I know this sounds harsh/rude, but actually it seems to be the key reason why many DFW are here in the first place - because they couldn't control their spending.

oscar52

Your still missing the point MUFC.

Of course a lower APR will reduce the overall cost, and a CCA will tell you exactly how much you will repay.

However, the point being made is if you borrow £1000, your rate will be 10.9% - however, if you borrow £1100 then your rate will be 7.9% - therefore over the same time period, the latter will be cheaper.

oakhouse13

Looking at these things purely as maths can be very misleading, it misses out the bit called life.

VIGILANT22

jonesMUFCforever wrote: »

Thank you Martin for the personal PM.
I would respectfully suggest if you do not like open discussion then you should start moderating posts.

They have....they rcvd mine in support of you......

MSE_Martin

Deleted_User wrote: »

While I accept this is great of MSE to raise this as a news story, is it a sensible tactic given - as you say - some people's lack of understanding of this issue.

Some people will no doubt interpret what you've just said as 'borrow more and pay less'. Shouldn't MSE's stance be 'don't borrow where possible' even if this means you end up paying more interest short-term? Or, in other words, shouldn't MSE start from the basis of the consumer not always being able to control their borrowing?

I know this sounds harsh/rude, but actually it seems to be the key reason why many DFW are here in the first place - because they couldn't control their spending.

That's an interesting point - there is a small irony in this for me that an early poster is telling me its too obvious and now Im being told its too complex!

However I still thing its an important story - quite deliberately I reread it a couple of days after writing it and thinking along similar lines yesterday added in more clarification to deal with exactly what you say...

"Shockingly borrowing can mean paying less overall
While its not unusal for the fact you borrow more to mean you pay a lower interest rate, that rarely translates on any great scale to the fact that borrowing more means you pay less overall. Yet currently exactly that is happening."

and


"How to check
Yet its important to be careful here, don't confuse loans just having a lower interest rate with a loan being cheaper - usually borrow more and it costs you more even at a lower rate.

What's happening here is an unusual anomaly due to the huge current difference in rates between different bands. To work out if you could gain by borrowing more, you need to find out the TOTAL repayment of the loan over the term - its only if the total is smaller that you're actualy paying less. "

We also plan to build a calculator that'll do this automatically for people