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Latest Update on Interest Rates

When looking for the cheapest loan most people base their judgement on the rate of interest being charged. In trying to track down the lowest cost deal they can find, they will compare one offer against another based on the interest figure, but often picking the cheapest loan provider will just result in an application being rejected for those with less than perfect credit records. We'll explain why that is in a moment.

It's true, the cheapest loans are usually those with the lowest interest rates, but the type and size of loan is just as important as the credit profile of the borrower. Lenders price their loans taking into consideration several factors. They need to have the cash available to advance the loans and if that is limited they concentrate on the most profitable areas. They also consider the competitive landscape for the types of loans they offer. It's better for them to be competitive in just one area as opposed to average in all. They also look at the size of the loan. Larger loans tend to be repaid over longer time periods. This effectively guarantees the lender an income for longer and gives them less work to do in setting up new loans, so the rates on larger loans are often better. In fact look at the main high street lenders at the moment and you'll see that larger loans, say those above £15,000, are sometimes half the price of small loans.

So why would your loan application be more likely to be rejected when you apply for the cheapest loans? It's all related to the regulations around loan advertising. In order for a loan company to advertise a low rate loan, they need to be provding two thirds of the loans they arrange at or below their advertised rate. So in order to be allowed to advertise a low rate, they have to turn down a high percentage of applications, that, if they went through, would need to be arranged higher rates. The lender would still make money from these higher rate loans, but it would force them to increase their advertised interest rate and may lose them their competitive position as a result.

So you can see that for loan companies who want to remain at the top of the best buy loan tables, a low typical interest rate comes at a cost and that cost is a higher percentage of rejected applications from unsuitable borrowers.

So where should these "unsuitable" borrowers go for their loans. Well applying to a loan broker like NiceLoans is a sensible start. We work with a range of loan providers, not just the cheap rate, choosy ones and using our experience your application will be mapped against providers who specialise in the type of loan you need. We'll work to get you a great loan offer as quickly as possible and possibly save you all the hassles of having your applications turned down.

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