Disappointing APR offer

Legocar

I've applied for a loan to buy a car from First Direct. 
Although the loan amount is high, my credit score is 999 and the repayment affordability check came back clear. 
They're advertised APR for the amount I wanted to borrow was 6.4% (slightly higher than the best rates out there but I already bank with them and foolishly believed this would help)
The application was passed through to their underwriters and they've eventually approved it... But with an APR of 9.9%
That's a £40 per month increase (£2.2k over the life of the loan)! 
It feels like they've decided that because I can afford the extra, they might as well take it. 
I called them, but just got the usual "it's in our Ts & Cs" response. 
Is it worth challenging them?
Does anyone know if there is even a channel through which I could get the decision reviewed? 
Call me naive, but if the APR increase is related to perceived risk, surely it's counter productive.
"We think this guy stands a chance of defaulting so we're going to make it even harder for him to pay"
That's just stupid... 

CliveOfIndia

Legocar said:

Is it worth challenging them?

Not really, no.

The advertised "representative" APR has to be offered to 51% of successful applicants.  But what any individual is offered will be dependent upon a whole host of factors such as income, affordability, existing debt, the data contained in your credit file.  The one thing that is not taken into account at all is your meaningless credit score (well, they generate a score internally, but the score you see on your CRA report is totally irrelevant).

Legocar said:

It feels like they've decided that because I can afford the extra, they might as well take it.

Not at all - it's a totally mathematical outcome based on an analysis of your data, there's nothing personal about it.

Legocar said:

Call me naive, but if the APR increase is related to perceived risk, surely it's counter productive.
"We think this guy stands a chance of defaulting so we're going to make it even harder for him to pay"
That's just stupid... 

It's just common business sense.  A higher APR, from your point of view, makes you think twice about whether you really need and can afford the loan.  From their point of view it means they earn more money from you (assuming you do pay it back) in return for the increased risk they're taking in lending to you.  If they thought it was completely unaffordable they'd have declined you outright.

Legocar

The advertised "representative" APR has to be offered to 51% of successful applicants.  

Understood, but what the regulations don't seem to define is how steep the drop off can be for the other 49%

I know enough about my own credit history and current circumstances to know that if it's a linear scale, I should be closer to the minimum APR than their offer would suggest.

I don't know why any of this surprises me, I know they aren't charities, but I think I'm entitled to be a little disappointed. 

CliveOfIndia

Legocar said:

The advertised "representative" APR has to be offered to 51% of successful applicants.  

Understood, but what the regulations don't seem to define is how steep the drop off can be for the other 49%

There aren't any regulations as such.  The "51%" thing is really nothing more than an advertising regulation.

In terms of what rate a particular lender can lend at, there are pretty much no regulations at all - it'll be down to each lender's target customer base and risk appetite.  Obviously most mainstream lenders will want to fall broadly in line with their competitors, purely from a business point of view (it's no good offering to lend at 100% APR if no-one borrows from you, you won't make anything).  But equally they have to balance that against their risk and general lending parameters.

Since each lender will have different lending criteria, you may very well find that a different lender will offer you a better rate - or a worse rate, of course.  Simply because with one lender you may fall into their "OK-ish" category, another will view you as "poor", another will view you as "Fair to good".  That's a bit of a woolly way of putting it, but the point is that because they each have different criteria, and will attach different weightings to each data-point on your credit file, they will assess you differently - even though your underlying data is the same.

th081

Legocar said:

The advertised "representative" APR has to be offered to 51% of successful applicants.  

Understood, but what the regulations don't seem to define is how steep the drop off can be for the other 49%

I know enough about my own credit history and current circumstances to know that if it's a linear scale, I should be closer to the minimum APR than their offer would suggest.

I don't know why any of this surprises me, I know they aren't charities, but I think I'm entitled to be a little disappointed. 

Why don't you try another lender to see if you can get a better rate. Maybe like lots of things loyalty does not pay

Nebulous2

From the loan tables on here, First Direct are offering the best rates for £25-30k at the 6.4% you described above. When you are getting to those levels there are very few lenders willing to take you on. The MSE guide says all of the ones listed require you to be an existing customer. The problem with table-topping loans is that most people with good history will apply. You are competing to be in the 51% with a lot of other low-risk customers. It's often better moving down the table one or two places, where getting into the 51% isn't so tough. That doesn't apply at this level if they will only take existing customers. 

Have you checked dealer finance? They sometimes offer decent rates. 

Another possibility would be two loans - the sweet spot is usually £7.5-15k. You could go for a £10k and a £15k, though the risk would be that you got good rates for one and not the other. It would also involve two additional hard checks. 

Altior

There is a way to achieve this if you have a strong credit file and income, with very low costs, but some caveats.

I stooze and this week got £18K @ 0% with 1.5% flat fee. 

You could use the money to fund a car purchase, rather than stooze, one caveat is having a plan in place at the end of the interest free periods. The other is that you need access to these types of deals in the first place, and obviously what, if any credit liabilities you already have.

The key to it is a money transfer card, I use MBNA. Zero MT fee and 7.9% over 24 months currently. Given your numbers you could actually use up some of that 24 months, but the standard method is to use 0% BT offers to pay off the MT card, as soon as you have received the funds. The interest in the MT card is a couple of quid (as it's only a liability for a day or two), and you then have your liabilities on 0% cards. So the only material costs are the fees for the balance transfers. 

martinbainbridge1975

Altior said:

There is a way to achieve this if you have a strong credit file and income, with very low costs, but some caveats.

I stooze and this week got £18K @ 0% with 1.5% flat fee. 

You could use the money to fund a car purchase, rather than stooze, one caveat is having a plan in place at the end of the interest free periods. The other is that you need access to these types of deals in the first place, and obviously what, if any credit liabilities you already have.

The key to it is a money transfer card, I use MBNA. Zero MT fee and 7.9% over 24 months currently. Given your numbers you could actually use up some of that 24 months, but the standard method is to use 0% BT offers to pay off the MT card, as soon as you have received the funds. The interest in the MT card is a couple of quid (as it's only a liability for a day or two), and you then have your liabilities on 0% cards. So the only material costs are the fees for the balance transfers. 

which card is doing the 1.5% fee, thats a decent deal looking at what is currently out there

martinbainbridge1975

Nebulous2 said:

From the loan tables on here, First Direct are offering the best rates for £25-30k at the 6.4% you described above. When you are getting to those levels there are very few lenders willing to take you on. The MSE guide says all of the ones listed require you to be an existing customer. The problem with table-topping loans is that most people with good history will apply. You are competing to be in the 51% with a lot of other low-risk customers. It's often better moving down the table one or two places, where getting into the 51% isn't so tough. That doesn't apply at this level if they will only take existing customers. 

Have you checked dealer finance? They sometimes offer decent rates. 

Another possibility would be two loans - the sweet spot is usually £7.5-15k. You could go for a £10k and a £15k, though the risk would be that you got good rates for one and not the other. It would also involve two additional hard checks. 

there is a finance broker called magnitude offering 8.9apr on car finance, that seems quite competitive, dealers appear to be 9.9 upwards on used cars, there is the odd 6.9 on new 

Altior

martinbainbridge1975 said:

Altior said:

There is a way to achieve this if you have a strong credit file and income, with very low costs, but some caveats.

I stooze and this week got £18K @ 0% with 1.5% flat fee. 

You could use the money to fund a car purchase, rather than stooze, one caveat is having a plan in place at the end of the interest free periods. The other is that you need access to these types of deals in the first place, and obviously what, if any credit liabilities you already have.

The key to it is a money transfer card, I use MBNA. Zero MT fee and 7.9% over 24 months currently. Given your numbers you could actually use up some of that 24 months, but the standard method is to use 0% BT offers to pay off the MT card, as soon as you have received the funds. The interest in the MT card is a couple of quid (as it's only a liability for a day or two), and you then have your liabilities on 0% cards. So the only material costs are the fees for the balance transfers. 

which card is doing the 1.5% fee, thats a decent deal looking at what is currently out there

Nationwide, it was my first CC application as a member. Funnily enough this offer was never pushed to me (I've never received comms from them about CCs), but it showed up in the app when cycling through the 'Products you might like' section.

maidmarionuk

Following on from the original post,  we're in a similar position.  No debt on CC's and only 2 pymts left on a loan.  Both of our credit scores are excellent and prior to us trying for a new loan we've always be given the headline rate or within 0.2% of it.  Tried the Post Office (6.1% APR) offered 9.9% & Sainsburys (6.4% APR) and offered 10.1%.  
Although we can afford the repayments at the higher rate as we're looking to repay over 7 years that's quite a lot extra in interest. 
Was thinking of applying for joint loan to see if it makes a difference to the offered rate but worried about a 3rd hard check.  Any advice please.