Two-thirds of loan applicants offered a higher rate than advertised or rejected
The report from the peer-to-peer lender revealed the difficulties customers face when applying for a personal loan, with most customers offered a rate higher than advertised or rejected altogether.
Zopa is campaigning for loan providers to be more transparent on rates – so customers are shown the rate they’ll be offered before they apply for a loan, rather than after.
Zopa carried out a mystery shopping exercise and research amongst loan customers, looking specifically at Barclays, NatWest, RBS, Santander, HSBC, Lloyds, Sainsbury, Tesco, M&S, and Clydesdale Bank.
It found that it was nearly impossible for customers to compare loan providers or shop around for a loan because the majority of lenders don’t show customers the actual rate they’ll be offered until they’ve completed the loan application.
This can sometimes leave a ‘hard’ mark on the customer’s credit file before they’ve received a personalised quote – potentially impacting their credit score.
Financial Conduct Authority (FCA) rules require banks and lenders to offer the representative APR or advertised rate to 51 per cent of successful applicants.
Zopa’s research found that lenders were sticking to the rules, with two out of three people offered a loan and then just over half of those offered the advertised rate. However, many others were rejected for a loan, meaning only a third of applicants received the advertised rate.
Zopa says the fact that most banks and lenders won’t give customers a clear indication of the cost of a loan and whether they’ll be approved until after they’ve applied means customers are playing ‘rate roulette’.
The research found the average loan rate offered to successful applicants was 6 per cent, nearly double the average advertised price of 3.4 per cent. For a personal loan of £8,000 over four years (the average loan term and amount in the UK), this equates to an extra £453 over the length of the loan.
Andrew Lawson, chief product officer at Zopa, said: “Customers deserve a fairer personal loans market. Zopa was set up to challenge a market where misleading loan rates are costing people money and wasting their time.
“For most loan customers, what they see isn’t always what they’re going to get, and that’s not right. In contrast, customers applying for a Zopa loan can see the actual rate they are going to get and whether they’ll be approved for a loan before applying and without marking their credit file.
“It’s about time the industry commits to reforming its practices so that customers can shop around to get the best deal.”