Why didn’t you get the rate that was advertised? There could be a number of different answers to this question.
Borrowers will often advertise their rates, with their Representative APR. For example, a lender may advertise ‘APR 5%’ or ‘rates starting from 3%’ and yet offer you a rate for 10%. This can feel very unfair and leave borrowers asking why they cannot get the rate that has been advertised.
What is APR?
Before we get into the reasons you might not have got the advertised rate, it’s important that we understand what APR really is. APR stands for Annual Percentage Rate and indicates the amount of interest you would be paying over a year. For example, if you borrow $100 for a year at an APR of 10%, you will pay back $10 and interest over the year. Lenders will advertise with a Representative APR, which is designed to help prospective borrowers have a clear understanding of the price of the loan.
The Representative APR must be the rate that the lender offers at least 51% of its borrowers. This means that if you find yourself in the other 49% the lender does not have to offer you the representative APR. For this 49%, it could be that you get a lower rate, but more often than not your rate will be significantly higher than the Representative APR. Lenders decide in a number of ways which borrowers get which rates.
What are some of the reasons my rate might be higher?
There are a few reasons why you’re right might be higher than the representative APR. Generally speaking lenders will offer a lower rate to customers who are less of a risk and have a better credit score.
If you are being offered a much higher rate than the Representative APR it could be that you have poor credit score, perhaps you have been unable to repay a loan in the past or have made late payments. It could also be the case that there isn’t enough data on your credit report to make you low risk, so if you have never borrowed money before the lender will have no way of knowing how likely you are to repay this loan. It could also come down to things you can’t change like your age or whether you rent or own your home. Certain types of people tend to be a higher risk and as a result will be offered a higher rate. The bigger potential risk you are to a lender, the higher the rate will offer you.
Will I get the right advertised?
There’s no surefire way of knowing whether you will get the rate advertised by the lender. The only way to truly know is to call up and ask, but there are a few things that make you much more likely to get the right advertised. You are likely to get the rate advertised if:
- You have a good credit history
- You have stable income and employment
- You have a good history with the lender or provider
- You are a homeowner
Is there anything I can do to potentially lower my rate?
There are a few things you can do that could help you to lower your rate. Firstly, try to improve your credit score. There are a few simple things you can do to quickly improve your credit score. To find out more click here.
You can also wait and try again in a few weeks. This sounds silly but because lenders are only able to offer the representative APR to 51% of customers they may just have hit their quota of borrowers they can offer this rate to. If You try again later in the month you may find that you are offered a better right.