Do you have a personal loan that you took out despite being offered an interest rate significantly lower than the one you saw advertised? Have you turned down a personal loan recently after applying for a loan at what you thought was a low rate but were offered a higher one?
If so, you may have fallen for what we call the low interest marketing hook.
What is Low Interest Marketing?
Low interest marketing is when personal loan companies advertise loans at a competitive interest rate, but when the time comes to offer you the loan you get offered a rate much higher than the one advertised. This is what happens to the majority of people who apply for loans advertised with rates, for example, “from 5.95%” or “from 9.95%”
While some customers will be offered this low rate, personal loan providers advertising these low interest rates rarely deliver on their promise.
Given the relative cheapness of the personal loans initially advertised by these companies, it is understandable why you may have fallen for the low interest marketing hook.
If you’re still in the position of shopping around for a personal loan, what can you look out for to avoid falling for this trick?
Look at the Range of Personal Loans Offered
The range of interest rates the lender offers is usually a giveaway of the type of interest rate you’ll be offered.
Here at NOW FINANCE, we deliver transparency in our advertising, so as well as allowing you to get your rate before applying we tell you in our adverts that our interest rate range is [low_int_rate_un] – [hi_int_rate_un]. Some of the other lenders putting attractive interest rates in front of you might have a range that goes as high as 34.95%. Imagine seeing an advert for a personal loan at 5.95%, being accepted, but then finding out the loan rate you’re offered is actually 34.95%!
*Comparison rate based on a $30,000 personal loan over a 5 year term. Fees and charges apply.
Using the Interest Rate Range to Work Out What You’ll be Offered
If you are attracted by an advert offering low rates, if you regularly check and maintain your credit report you will be able to give yourself some idea of what you’re likely to be offered even before applying.
Let’s say that you have an “Excellent” credit score, and are looking at loans from a company with a range of 10.95% to 34.95%.
We have a difference of 24 between the lower and the upper interest rate. Credit scores are generally placed into one of four ‘buckets,’ so depending on your actual score it will either be “Excellent,” “Very Good,” “Good,” or “Average.” With the range of 24 points between the lower and upper rates, this divided by the four ‘buckets’ would mean:
Based on this example, you could have a flawless credit history and record of making repayments, and still be offered a rate of 16.95%!
The Problem This Gives You as a Consumer
The big problem you have is that repeated credit applications logged on your credit file can impact your ability to be accepted for credit in the future. Even if you are accepted for credit, you may be offered a higher interest rate as a result of the numerous searches on your file.
This is compounded when you apply for a personal loan based on the example figures above. You apply for a personal loan expecting a rate of 10.95%, but when you’re accepted and offered a rate of 16.95% you decide you are going to look elsewhere. You turn down the loan offer, but the loan company calls you up, explains the impact of repeated searches on your credit report, and then basically scares you into taking the loan at the rate you are offered, as they tell you the next time you apply you won’t be able to get a lower rate. This means you could end up spending hundreds if not thousands of dollars more on repayments over your loan term than you would had you been offered a loan at the advertised rate.
When you reach this stage you have well and truly fallen for the low interest marketing hook and may be left feeling like you have no choice but to take the loan being offered.
Get Your Rate Before Applying
Why put yourself through this? Why risk having to accept higher interest rates in future because personal loan companies can’t be transparent with their advertising?
If you are looking for a personal loan, you can get your interest rate from NOW FINANCE before you apply. When you have your interest rate, you can then use our personal loan calculator to work out how much you can borrow and what your repayments will be with different loan terms, leaving you fully informed of your options and how much a NOW FINANCE personal loan will cost you.
Avoid falling for the low interest marketing hook, know what your repayments will be, and get a tailored interest rate specifically based on your credit file and your circumstances from NOW FINANCE.
Disclaimer: This article contains general comments and recommendations only. This article has been prepared without taking account of your objectives, financial situation or needs. Before taking any action you should consider the appropriateness of the comments made in the article, having regard to your objectives, financial situation and needs. If this article relates to the acquisition, or possible acquisition, of a particular credit product you should obtain and consider the relevant disclosure documents before applying for the product.