Negotiating with a loan company over APR - any success stories?

Cardinal-Red

Hi - my partner and I have a reasonably large amount of unsecured debt, totalling around £22k. Most of this is for our two cars, and is spread over a whole host of cards... Capital One 0% (until January 2007), and some 6.9% life of balance cards.

We decided with our wedding upcoming that consolidation was the way forward. We went for £20k with Alliance and Leicester but were refused. Thinking I might as well take the plunge, I applied with AA and Abbey on the same day for £25k over 6 years.

The AA was advertised at 6.0%; Abbey at 5.8%.

The AA phoned me on the day and offered me the loan, but at 8%. This is still ok (our alternative was the Cahoot flexible loan we have which is currently around 14% APR) and I've now got the documents. However, Abbey have today offered it to us at 6.5%. Nothing is signed yet.

The AA loan comes with deferred payment for 2 months - handy for Christmas and tieing up outstanding minimum payments while the loan is put in place. Abbey doesn't.

So to my point (finally!) - do you think there's any point is writing to AA and saying thanks very much, Abbey offered me this but I very much want to stay with you, will you match the APR? To be fair I was impressed with the way AA handled my application and would 'prefer' all things equal to go with them. But £25 a month for 6 years adds up!

Thanks guys...

Cardinal-Red

P.S. Does anybody know the rationale behind charging higher APRs for 'higher risk' customers? I do understand the theory in principle, i.e. higher risk, higher profit needed to justify the lending... but surely making somebody you believe is less likely to pay their full liability more every month actually increases the chance of them defaulting?

I read a very unconvincing argument on the smile website which compared it to no-claims bonuses for drivers.

I just wondered if I'd missed something?

Phoenix79_2

I guess another way of putting it is that people who have excellent credit history and have never missed payments should always be rewarded with better rates than people who haven't. Otherwise whats the point? How would you feel if you were paying more per month for the same loan than someone who has had defaults in the past?

Cardinal-Red

Phoenix, you might be right, but then the theory and rationale behind it should be that those with good records are being rewarded, rather than those with credit histories not as acceptable to the lender are being charged more to mitigate the risk of default?

gtheanimal

Cardinal-Red - I think the answer is no harm in trying - I have been successful before at getting Lloyds TSB to reduce their APR in a very similar situation to yours. The fact is that they want your business, the APR you're after is still higher than their typical, so why should they say no.

Before writing I suggest you try calling - you can get things done a lot quicker, you just need to speak to the right people

Phoenix79_2

Cardinal-Red wrote:

Phoenix, you might be right, but then the theory and rationale behind it should be that those with good records are being rewarded, rather than those with credit histories not as acceptable to the lender are being charged more to mitigate the risk of default?

Not quite sure I understand where you're coming from (i'm very tired!)

Banks can afford to offer better rates to 'good' customers as they almost see this as guaranteed income hence the low margains.

Cardinal-Red

Phoenix,

I'm basically drawing a (perhaps false) distinction between the APR differences being due to rewarding customers with good histories (as you suggest) and 'punishing' those with bad histories, or as the banks put it, charging more for the increased risk.

I agree with you that banks are free to charge what they want and this certainly isn't a 'big bad bank dares to try to make money' thread... it was more curiosity as if it's the latter, I don't think charging more will actually decrease risk, and in situations where the payments are tight, might actually increase risk of default.

As I say it's just a matter of interest on my behalf and wondered if anybody knew...