New Report Shows Only 15% of Applications for Loans Will Receive Advertised Rates

In recent developments of the financial market in the United Kingdom, startling news has come out that just 15% of all loan applications will receive the advertised rate. As reported by all major media outlets in the UK this week, the change will come in the midst of higher concern among individuals with loans.

Before the new rules for loans in the UK come into place, lenders were able to advertise loan rates differently than they would other financial services. For instance, the advertised rate on a loan would be legal if only 66% of borrowers available in the financial system in the UK qualified for it. With these new guidelines, most media sources are reporting that this rate will fall to just 51%. In order to fully understand the implications of this report, one should consider the other numbers involved. At the time being, around 70% of those people who apply for a loan are not accepted. From the minority that is accepted for loans, the amount of loans which are being advertised at the rate which will be charged might be as low as 15%.

The Consumer Credit Directive started these changes, and many borrowers will be affected, since there are currently several banks in the United Kingdom which have taken on policies of risk-based pricing.

While this seems like bad news for consumers, there is some light at the end of the tunnel for them.

Along with these new regulations, consumers will have to be provided with a Secci, which is a set of standard information from the European Consumer Credit Directive. This will provide detailed information on the loan being taken out as well as the interest rates and repayment terms. In addition to this information which must be provided to the people taking out loans in the UK, the lenders will also have to implement tougher financial checks. These include but are not restricted to affordability checks, chance for repayment checks, and overall credit history checks.

This would be a big change over current rules in that currently, lenders simply have to see whether or not the person applying for the loan has a high chance of defaulting or not. With the new rules, lenders would also have to issue a notice looking into the ability of each person borrowing money to pay back the loan as part of a healthy loan plan. If the individual applying for the loan cannot afford the loan in a financially healthy manner, the loan should be denied.

This news is important for those seeking loans in the United Kingdom since the rule change will be substantial. Not only will the advertised rate be less and less prevalent, but those who seek loans will be able to access a more detailed report of the financial health of their bank accounts and loan plans. Overall, getting a loan in the UK has gotten slightly more difficult. Consumers should check and double check the interest rates before agreeing to any such loan contract.