It can sometimes come as a surprise for borrowers, after they take out a loan, to find that they have not received the advertised rate. There are a number of reasons why this may happen including:
- You have a good, fair or bad credit score which alters the rate
- Your duration of the loan or your loan amount is different to the representative example
- The lender is being more risk averse at that moment and is charging high rates
- The lender is limited in the amount they can lend out and wish to charge higher rates
- You are using collateral which has a different value based on what the lender is offering
- Your application has been manually underwritten or adjusted for you
What is The Advertised Interest Rate For a Loan?
The advertised rate, also known as the nominal interest rate, is the rate used to calculate how much interest is paid on your loan. For example, a $200,000 with a 6% interest rate would amount to an annual interest rate of $12,000 (or $1,000 monthly).
How Does APR Affect The Advertised Interest Rate For a Loan?
The APR, or annual percentage rate, is the yearly interest charged on loans generated by a sum that is paid to investors or charged to borrowers. Typical APR is the rate which must be sold to at least 51% of successful loan applicants. However, the remaining percentage (49%) of applicants who apply do not need to receive that rate.
APR is affected by multiple factors including the lender, the borrower’s credit score, the amount being borrowed and the length of the loan term. For short-term loans, such as payday loans near me, the APR will be extremely high because even though the loan is only over a short period, the APR is expressed as an annual percentage.
Why Did I Not Receive The Rate Advertised For a Loan?
Legally, lenders are only required to sell the typical APR to 51% of successful loan applicants. This means that the remaining 49% can receive a different rate to that of the one advertised.
Borrowers with good credit, who can demonstrate steady employment and who have homeowner status, are more likely to receive the loan at the more favorable rates. This is logical as one would assume that lenders would reward borrowers with the best credit with the most favorable loan terms as borrowers with better credit scores are more likely to be able to repay on time and in full.
However, there are cases of people with excellent credit being offered interest rates which are far higher than the advertised rate. It can also depend on the product with the rates charged for payday loans often being very high, but loans with collateral are much lower.
How Can I Get the Advertised Rate?
Borrowers are more likely to receive the advertised rate if they meet the following criteria:
- Good credit history
- Stable employment and monthly income
- Homeowner status
- Fit the right borrower profile (i.e. age, demographic etc)
- Good history with the lender or provider
As lenders are only allowed to offer the advertised rate to a certain volume of borrowers per month, they are more likely to offer them to borrowers with good credit histories.
Also, towards the end of the month, you may find that lenders become more strict with their lending criteria; this will be due to the restricted number of loans they have available at the advertised rates. By the end of the month, they may have already reached their lending thresholds and therefore may be offering loans with a higher interest rate.
Can I Ask My Lender Why I Didn’t Receive The Advertised Rate?
Yes, as a borrower, you are legally entitled to ask the lender that you applied with why you did not receive the advertised rate and the deciding factors to receiving the APR that you received. This will not be information that you receive immediately so you will need to be patient.
How Can I Ask For a Lower Interest Rate on a Loan?
If you want to ask your lender for a lower interest rate on a loan before you enter an agreement, there are certain things you can do.
Do your research – before entering a loan agreement shop around with multiple lenders to try and find the most competitive rates
Ask your lender if they’ll match a lower rate – if you shop around and find a more competitive rate, it is possible to approach your lender and ask if they will match the lower offer
Strengthen your loan application – the better your borrower profile, the more likely you are to be in a position of negotiation.