Potential 'rip off' by Bank?

P4ula

Hello,

I am wondering if what has happened is bad advice or even being taken for a ride by his bank and which (if any) way to tackle it.

My 19 year old son works full time and over the past 2 years has saved up just over £4,000 (kept in his bank account) to put towards his first car (he doesn't go out often, doesn't smoke etc) His 'plan' was to save up another £1000 so he would have £5k to spend to split roughly as £3.5k for the car and £1.5k for his first years insurance. He would then save for year 2's insurance during the 1st year he had the car and so on.

Anyway to cut a long story short, a relative is now selling her car privately (its a Ford Fiesta 1.25l, 3 years old and hardly used in case anyone is interested). However she wants £5,000 for the car (which is what a garage offered her as trade in) My son would dearly like this car albeit his total savings are somewhat short.

I have offered to give my son £1k (all I can afford) towards his total but he would be £1.5k short in total with the cost of the insurance.

Anyway, as he would dearly love this car, I suggested he went to speak with his bank, and see if he could get a personal loan for £1.5k payable over 1 year to enable him to pay for the car.

He could then pay in one chunk the car insurance which is roughly £1.5k according to quotes he has got.

So he went smartly dressed to the bank yesterday. He took his bank statements etc with him also his workings out for the loan and how he would repay it based on his savings history and future earnings projection.

To cut a long story short they wouldn't give him a personal loan - he allegedly didn't score high enough on the 'credit check'.

However the bank did offer him:

1. Car insurance for the vehicle - at £2.200 for the first year (payable in instalments with an interest rate to be added of 23%)

or

To give him an overdraft of £1.5k which he quote 'could pay back in a year' However on paper this works out very very expensive (much more than a personal loan would cost over the same period).

He said he would think about it and came away somewhat disappointed.

Now my query is, the personal loan would have been the cheapest way for him to borrow the money, but they said he 'failed the credit score'.

If he failed the credit score, then how come they would offer him either expensive car insurance (payable in installments) or an overdraft for the same amount as he wanted for the personal loan again repayable over the same period he wanted for the loan.

Both these options work out much more expensive for him than a straight personal loan.

Am I being over suspicious here that the bank assistant he saw would make more commission on either the car insurance or overdraft hence made up a !!!! and bull story about failing the creidt check in order to earn herself bigger commission etc.

Is there any way of complaining about this sort of thing?

Thanks

Paula

rb10

Being declined for a personal loan, but not for an overdraft or car insurance is very common.

These decisions are based on an assessment of the risk that a particular customer provides to the bank.

The risks in lending to your son are, the bank considers, relatively high. Therefore, they need to charge more for lending to him than they might charge someone else.

It's the same as with credit card interest rates - the person who comes with a low level of risk may get 10-15% APR, whilst someone who is a high risk may get 25-30% APR. They price their products according to the risk that they pose.

opinions4u

P4ula wrote: »

So he went smartly dressed to the bank

Not really necessary in this day and age, but good for him!

yesterday. He took his bank statements etc with him also his workings out for the loan and how he would repay it based on his savings history and future earnings projection.

Again, good for him. It shows a maturity.

To cut a long story short they wouldn't give him a personal loan - he allegedly didn't score high enough on the 'credit check'

There won't be an allegedly about it. Different forms of lending are underwritten in different ways based on the bank's perceived risks for lending to a particular customer. The loan was applied for and it was declined.

1. Car insurance for the vehicle - at £2.200 for the first year (payable in instalments with an interest rate to be added of 23%)

From what you've posted, it sounds like he could get insurance cheaper elsewhere. But at least the bank has tried to find a solution for him.

To give him an overdraft of £1.5k which he quote 'could pay back in a year' However on paper this works out very very expensive (much more than a personal loan would cost over the same period).

While you don't state what the prices in question are, a £1,500 overdraft would very often be cheaper than a £1,500 personal loan. Headline rate and offered rate aren't always the same thing. And headline rates often include a minimum loan amount of £5k or more.

He said he would think about it and came away somewhat disappointed.

Again, a sensible move. Even if they'd offered him exactly what he went in for, he should do the same. Time to think things through.

If he failed the credit score, then how come they would offer him either expensive car insurance (payable in installments) or an overdraft for the same amount as he wanted for the personal loan again repayable over the same period he wanted for the loan.

Because the bank staff member was trying to find alternatives to meet the customer's needs. They can only do this from the product range that they have and, in this case, have found alternative ways of doing things. It's much better than "computer says no" and chucking the customer out. Equally, your son's approach of not signing up there and then and taking time out to think is absolutely spot on.

Am I being over suspicious here that the bank assistant he saw would make more commission on either the car insurance or overdraft hence made up a !!!! and bull story about failing the creidt check in order to earn herself bigger commission etc.

Yes. In my bank branch days I'd have earned a tiny amount of bonus for a £1,500 loan sale, but absolutely nothing for an overdraft or car insurance sale. The bank has started with trying to do what the customer wants, not been able to help, so looked for alternatives.

Is there any way of complaining about this sort of thing?

Your son can complain to the bank, but I can't see that they've done anything wrong. It's not a "rip-off" or a "scam" as such. It's just the products that they can make available to him at this point in time are more expensive than he'd like them to be.

So choose to buy, or choose not to buy.

Perhaps he'd be better off saving for another year or so?

(From what you've posted, this is a mature and sensible young man. While the outcome may be disappointing, if he continues to handle himself in the way described I suspect he will be much liked by those he works with and socialises with and, from a banking perspective, he will build a strong internal rating alongside a strong external credit rating. This will allow him to access lines of credit more freely in the future, often on preferential terms. You must be proud of him).

chexum

P4ula wrote: »

To give him an overdraft of £1.5k which he quote 'could pay back in a year' However on paper this works out very very expensive (much more than a personal loan would cost over the same period).

There's one more point to it - personal loans are usually not that cheap either, if it's "only" for a few thousand. And the quoted APRs are for perfect credit history - which a 19 year old rarely have. Even if they do, they still have negative marks on the age. So I'm not at all sure any loans he would qualify would be that much better than the overdraft.

From the loan side of view, I don't think there's any point of complaining. A good credit file takes a few years to build.

The cost of young drivers insurance is more of a problem in my eyes, but noone seems to complain about that... I mean, for the cost of the insurance you seem to be happy to accept, you could get a nice, reliable car. Each year...

ERICS_MUM

What a shame. He sounds such a lovely sensible lad, I bet you are really proud of how he has approached his aim of getting a car.

PS could the relative agree to take the shortfall in installments over the next few months ? If he is not paying interest he would be able to pay it off in under a year.

jimjames

Has he tried any alternatives for getting the loan? Eg Tesco or Sainsburys finance. No idea if they are competitive or would offer but their leaflets are all around when you go into the store so at least for comparison it might be worth a look.

Funkyfreddy

jimjames wrote: »

Has he tried any alternatives for getting the loan? Eg Tesco or Sainsburys finance. No idea if they are competitive or would offer but their leaflets are all around when you go into the store so at least for comparison it might be worth a look.

Or try another Bank - go in armed with the same information he did with his existing bank (Statement History etc) and see what they say. Offering to move his day to day banking to them may be a useful carrot ?

FF

AnonymousForObviousReason

Could you or someone else put him on their insurance for a few years? This would reduce the costs for him on the insurance side (just make sure it's no claims protected). Also has he done an advanced driving class as I understand that reduces costs.

I would back the idea of waiting a year and savings but if this is something your son wants he's obviously mature enough to carry payments through. An alternative loan company may take a different view of his circumstances, but the APR could be higher.

I would also like to add the congrats on raising a sensible lad. For future loans is your son currently building up a good credit score, if not would be a good idea?

anna42hmr

AnonymousForObviousReason wrote: »

Could you or someone else put him on their insurance for a few years? This would reduce the costs for him on the insurance side (just make sure it's no claims protected). Also has he done an advanced driving class as I understand that reduces costs.

I would back the idea of waiting a year and savings but if this is something your son wants he's obviously mature enough to carry payments through. An alternative loan company may take a different view of his circumstances, but the APR could be higher.

I would also like to add the congrats on raising a sensible lad. For future loans is your son currently building up a good credit score, if not would be a good idea?

Please be aware if you do put him on someone elses insurance as a named driver, if indeed he is the main driver of the vehicle it is technically Fronting and insurance companies are catching on to this and is technically fraud, as by putting him as a named drive and not the main driver, it is misrepresnting the risk.

whilst i understand that many people do Front policies, you should be aware of the risks http://www.guardian.co.uk/money/2009/jul/12/car-insurance-fraud

also in the long term does not really help as the op's son needs to start getting his own no claims history started to reduce the cost over time

if he does get insurance in his own name, try having a look at the cash back sites (quidco, topcasback etc) to see if they have any cash back offers for insurance, as every little helps

chris_m

Curiously enough, it can sometimes reduce a young person's premium by having them as the main driver but putting a parent on as a named driver.

Lokolo

Has he ever had credit before? Mobile Phone Contract? Credit Card?