Member Article

Shopping around for cheap loans could leave detrimental trail

MPs have been warned about a worrying possibility that consumers seeking the cheapest loan deals could suffer if their credit ratings show multiple applications.

The Treasury Select Committee were told that banks and building societies are increasingly using risk-based pricing as a response to a call for more responsible lending, but this means that each request for a price could be logged onto a person’s credit file.

Martin Lewis, of Moneysavingexpert.com, told the panel that some consumers were forced into making several applications after finding they were not eligible for lenders’ advertised rates.

He submitted case studies to the committee which included a consumer who said they had applied for a loan at a rate of 9%, but were actually offered one for 30%.

He said this contributed to customers declining to take up one loan and applying for others, but by doing so their credit rating might be affected.

“The system is designed to stop shopping around at the detriment of consumer choice,” said Mr Lewis.

The committee heard from industry members that legislation requires lenders to advertise an APR rate that 66% of those taking up the deal will be able to receive.

The remaining customers - a third of those taking up the loan - were potentially paying a higher rate.

This was posted in Bdaily's Members' News section by Ruth Mitchell .