Sainsbury 3.4% loan

Hazzanet

Pixie5740 wrote: »

Your butter analogy isn't just simplistic it really doesn't apply to loans at all.

Let's go butter free for a moment then.

I want a loan, and it's priced up at £100.00 a year.
I go to the till and the loan comes up on the till at £220.00 a year.

I'm disappointed and wouldn't have gone to the till with the loan had I known it would be £220.00 a year - I'd have gone elsewhere.

No butter involved - more of a sunflower spread man myself anyway.

The point I'm making, and perhaps it's getting lost in translation is it's hard to ascertain where you stand when the total cost of the loan (the price) is not clear at the outset because it's only "representative". (Which opens the debate on whether 51% is really statistically representative...)

d70cw6

They cant tell you what rate they will offer you at until you apply for it as they dont know how responsible with money you are until they perform a search on you.

All they can do is say we'll give 51% of people that apply the headline rate.

Hazzanet

d70cw6 wrote: »

They cant tell you what rate they will offer you at until you apply for it as they dont know how responsible with money you are until they perform a search on you.

Yep I get that. If all lenders offered the soft search facility it would be a level playing field because you can compare prices sensibly. At the moment, I may see:

3.4% at Sainsburys
3.6% at Hitachi

Obviously I'll apply for Sainsbury's because the headline rate is lower, but when I get "accepted" the rate may be 7.8%. Hitachi may have taken me on at their 3.6% headline rate. But I may then have wasted a credit search which could put the Hitachi rate up now.

It's not a "fair" way of pricing the loan (in my opinion).

d70cw6 wrote: »

All they can do is say we'll give 51% of people that apply the headline rate.

Why can't 100% of applicants get the headline rate, and those that don't fit the bill be rejected outright? At least the price of the loan is clear at the outset.

*Price = total cost of servicing the debt.

andyfromotley

Hazzanet wrote: »

Why can't 100% of applicants get the headline rate, and those that don't fit the bill be rejected outright? At least the price of the loan is clear at the outset.

.

Ah now wouldnt that be nice and simple.

Cycrow

Hazzanet wrote: »

Yep I get that. If all lenders offered the soft search facility it would be a level playing field because you can compare prices sensibly. At the moment, I may see:

3.4% at Sainsburys
3.6% at Hitachi

Obviously I'll apply for Sainsbury's because the headline rate is lower, but when I get "accepted" the rate may be 7.8%. Hitachi may have taken me on at their 3.6% headline rate. But I may then have wasted a credit search which could put the Hitachi rate up now.

It's not a "fair" way of pricing the loan (in my opinion).

And if you were rejected instead of offered a different rate, what difference would that make ?

Hazzanet

Cycrow wrote: »

And if you were rejected instead of offered a different rate, what difference would that make ?

If it was a full credit search without the footprint (soft-search), the Hitachi loan at 3.6% could still be available.

Brock_and_Roll

Hazzanet wrote: »

If it was a full credit search without the footprint (soft-search), the Hitachi loan at 3.6% could still be available.

I am with you on this, despite being a banker myself.


If the time taken to make the application was negligible as was any affects on your rating from a search, then I would have no problem with the "representative apr" approach.


Basically the lenders like it this way it is because the low rate encourages applications and decent chunck of borrowers end up accepting a higher rate because that cant be bothered or don't want to risk applying elsewhere.


I use two analogies which I think are more fair.


Firstly if Churchill emailed me saying that they had a special offer on my car insurance at £150...and I then spent 45 minutes tapping in all the guff in the website only to find it costs £300, I would be pretty cheesed off.


Likewise, when I get emails from Ryanair saying "Fly to Aberdeen" "from 29.99" I would expect at least some flight to be available to me at price even if they were for a Monday in January.


If I treated my corporate customers in this way, the relationship would not last long!

Pixie5740

But a soft search is not a full credit search.

You could have a one size fits all APR but then either more people are rejected or interest rates are pushed up for those with better credit who are capable of achieving the best rates currently. It's a bit like when women's car insurance went up because it was ruled unfair for men to have to pay more car insurance even though men are statistically more likely to have an accident.

Hazzanet

Pixie5740 wrote: »

But a soft search is not a full credit search.

Herein lies the problem. There needs to be something available where you are fully credit scored and made an offer, but the search isn't fully registered against a credit file until you actually proceed with the loan.

It must be technically possible, but the cynic in me thinks that the "representative" price model and the way it currently works suits loan makers as they can have 49% of loans made at a more profitable rate than their headline.