Personal loan interest rate

andydiysaver

Clive_Woody wrote: »

Out of curiosity how do you think banks will function without making a profit?


I would imagine profit levels are fairly uniform across the various risk bands due to the higher number of defaults among the higher risk borrowers cancelling out the higher returns from the higher risk borrowers who do repay as agreed at a higher APR.

Clive


point 1. they don't. even after all of this seemingly limitless potential for greed, they become over confident,they crash and want our income tax !



point 2. it is appreciated they are there to profit, but they do not often present the financial products in a truthful manner. They always blame risk/credit scores for a high rate. That may sometimes be the case, but other times they just want the cash. They also advertise rates that perhaps a fraction of a percentage of times are rates they give. This would be misleading advertising in any other sector.


point 3. are you a banker by any chance?

Clive_Woody

andydiysaver wrote: »

Clive


point 1. they don't. even after all of this seemingly limitless potential for greed, they become over confident,they crash and want our income tax !



point 2. it is appreciated they are there to profit, but they do not often present the financial products in a truthful manner. They always blame risk/credit scores for a high rate. That may sometimes be the case, but other times they just want the cash. They also advertise rates that perhaps a fraction of a percentage of times are rates they give. This would be misleading advertising in any other sector.


point 3. are you a banker by any chance?

Point 1: Sounds like they should be charging more then and we have been having too much of a good thing. Perhaps you should write to them and explain this.

Point 2: The rates they advertise have to be given to 51% of borrowers. I am not 100% sure but I would guess that this is audited. Many people do not realise that the advertised rate is a typical rate, if they bothered reading the T&Cs and did a bit of basic research into what they were applying for this would soon be very obvious.

Point 3: I project manage clinical trials and have no connection with the banking industry...well I do have a couple of school friends who work in banks but I do not believe that I am unduly influenced by them.

cooltt

Hi andydiysaver

There's one two two short sighted comments here but my point was exactly as you have explained. Loyal customers who run their accounts correctly and pay back what they owe get p**ssed all over. I could have just said sod it and declared myself bankrupt but I have morals and will pay back every penny I owe!

AND you only get told the final interest rate after your credit file has been searched, that's what I objected too effectively stopping you from shopping around.

Anyway as their personal loans are now quite flexible continually over paying on instalments clears the loan quicker and thus saving interest, quite a lot actually. So effectively playing it clever can lower your interest rate over the term of the loan.

Thanks for the comments oh and btw I was telling the truth my debt is £20K not £30k!

Lets also not forget what happens when the Banks gamble their money away and who has to bail them out!

bigadaj

I think both sides are right and yet wrong at the same time.

One issue is that interest rates have been low for far too long, meaning people think that unsecured borrowing at 5% is normal, and it certainly isn't.

A large amount of unsecured debt obviously moves individuals up the risk scale, though in historic terms the rates being offered, though considered expensive, are fairly average.

The flip side is that the banks risk management systems obviously failed during the financial crisis, risk was totally underestimated. The collapse of bos, then hbos and finally lloyds was largely down to the mis pricing of risk in commercial loans.

andydiysaver

bigadaj wrote: »

I think both sides are right and yet wrong at the same time.

One issue is that interest rates have been low for far too long, meaning people think that unsecured borrowing at 5% is normal, and it certainly isn't.

A large amount of unsecured debt obviously moves individuals up the risk scale, though in historic terms the rates being offered, though considered expensive, are fairly average.

The flip side is that the banks risk management systems obviously failed during the financial crisis, risk was totally underestimated. The collapse of bos, then hbos and finally lloyds was largely down to the mis pricing of risk in commercial loans.

unsecured borrowing at 4-5% in context of the interest rate on saving, is entirely appropriate. This is the same thing that underpins one of the mantras of this site "pay debts with savings" because even Warren Buffet couldn't expect to have 20% return. Therefore, if you look at what the banks are paying out as "interest" next to what they get back, then I think a lot of the risk is already built in, in their favour. So on from that the dubious practices of giving high rates to very solvent people, just because they know they're "good for it" doesn't look like the bubble, but does look like more than an echo of the greed that put them in dire straits in 2008. I was going to say up sh** creek without a paddle, but of course the paddle was there in the British taxpayer, we didn't get a referendum on it!


Which brings me onto my next point. IF most banks are humbled on a national scale, for their risk modelling being far too skewed erring on the side of profit and greed, would they dare do it again (in other words, take the total P*** out of the British taxpayer) ?


if these rates are to be believed, the answer is yes, because it's rock and a hard place for investment banking. Enormous bonuses to pay and not enough made on the shares and the big question mark - how do we address the losses. Easy. charge mega rates for solvent people that are completely at odds with the tiny interest rates the other way, and pass off the opportunism, by calling it "risk management". Perhaps if regulators are ever properly brought into this greed ridden industry a good first point would be to make loans a simple yes no answer, no enticing in and increasing rates and other spurious tactics, because to be frank, when they up the rate, I don't believe it's driven by risk, it's driven by greed in the name of risk.


The only way to boil down and separate the two is good old fashioned advertising standards. Sell the loan at advertised price or don't sell it. However I would hazard a guess that all these banks, previously "too big to fail" are now apparently too big to regulate.

andydiysaver

Clive_Woody wrote: »

Point 1: Sounds like they should be charging more then and we have been having too much of a good thing. Perhaps you should write to them and explain this.

Point 2: The rates they advertise have to be given to 51% of borrowers. I am not 100% sure but I would guess that this is audited. Many people do not realise that the advertised rate is a typical rate, if they bothered reading the T&Cs and did a bit of basic research into what they were applying for this would soon be very obvious.

Point 3: I project manage clinical trials and have no connection with the banking industry...well I do have a couple of school friends who work in banks but I do not believe that I am unduly influenced by them.

sorry Clive you said risk bands and I thought that sounded very like them!


Point 2 audited or not, if I sold a set of 3 cups on ebay , and more than half the time only sent 2, I'd be out of business and rightly so. I don't care what the percentile of a going rate is, if the going rate is x% then ideally 100% of applicants get x% or turned down. I personally had a rate tripled on the phone, and was I actually the ridiculous high risk bet the bank had built into that rate i.e. had I shown as much contempt for myself as they did for me in quoting me it, I'd be living rich now only to be very poor in the future. But people out there accept these false rates, only to take the sting in the tail when they get on the phone, and are duly shafted for years to come, you couldn't get away that kind of malpractice in any other industry. Bit of a Trojan horse if you ask me (in classical terms, not IT terms)

Thrugelmir

cooltt wrote: »

I expected it to be a little higher with my circumstances but was really annoyed at 12.9%!

Is it a lower rate of interest than you are paying on your credit cards?

Clive_Woody

andydiysaver wrote: »

Point 2 audited or not, if I sold a set of 3 cups on ebay , and more than half the time only sent 2, I'd be out of business and rightly so. I don't care what the percentile of a going rate is, if the going rate is x% then ideally 100% of applicants get x% or turned down. I personally had a rate tripled on the phone, and was I actually the ridiculous high risk bet the bank had built into that rate i.e. had I shown as much contempt for myself as they did for me in quoting me it, I'd be living rich now only to be very poor in the future. But people out there accept these false rates, only to take the sting in the tail when they get on the phone, and are duly shafted for years to come, you couldn't get away that kind of malpractice in any other industry. Bit of a Trojan horse if you ask me (in classical terms, not IT terms)

If banks only provided two thirds of the loan yet charged you for the full amount then it would fit your eBay example, but the typical rate for APR quoted is just that and is clearly explained to those who take the time to read and understand what they are applying for.

If banks only lent money to people who qualified for the typical rates then Apple would soon be out of business and the demand for the latest big TVs and shiny new cars would drop dramatically.

This is not malpractice, this is how mainstream lending works. Yes in an ideal world we would all get the quoted rate, but in that ideal world everyone would pay back what they borrowed.

Nebulous2

Me, me, I'm a banker - an amateur banker!

In other words I have a few pounds offered to my fellow man through zopa. Now I haven't done all the number crunching myself, but Zopa provide a huge amount of data on how loans are performing and they show pretty much what is said above. Different risk bands all show consistent net return profiles, with higher rates balanced by more bad debt. Bad debt in the lowest credit band works out around 1% So for anyone who can be bothered, that data is available freely, covering one lenders experience over hundreds of millions of pounds in loans. They also provide average profiles for people in each band.

Just remember though, all of zopa's borrowers are seen as 'good' risks. They don't play the very high interest, very high risk game.

andydiysaver

Nebulous2 wrote: »

Me, me, I'm a banker - an amateur banker!

In other words I have a few pounds offered to my fellow man through zopa. Now I haven't done all the number crunching myself, but Zopa provide a huge amount of data on how loans are performing and they show pretty much what is said above. Different risk bands all show consistent net return profiles, with higher rates balanced by more bad debt. Bad debt in the lowest credit band works out around 1% So for anyone who can be bothered, that data is available freely, covering one lenders experience over hundreds of millions of pounds in loans. They also provide average profiles for people in each band.

Just remember though, all of zopa's borrowers are seen as 'good' risks. They don't play the very high interest, very high risk game.

I went on there once and got accepted, then changed my mind, I do like the setup there. For one thing it's far more transparent than any given bank


secondly it also spreads risk (banks also do this but they don't pass back any of the gains) , so if you have your investment in many places and one goes bad it's more like cutting off the dross quickly than trying to plug a million holes in a sinking ship with ten fingers. The dynamic there is clearer, albeit not completely clear - but with visibility there far less potential for distorted figures via greed.


it's also better than a banks paying out rate in terms of interest. Another reason I like it and that it's fairer - spread is tighter.