THE UK loan market needs to be clearer and fairer to avoid misleading consumers, according to new research.
Unlike peer-to-peer finance platforms, which tend to be very transparent about fees and interest rates, some mainstream lenders offer “teaser rates” to encourage people to apply for a loan, only to present them with a much higher interest rate on application. Saga Money, who conducted the study, argues that this practice is rife in the market and is unfair to consumers.
The average of the top 10 lowest advertised rates on the market suggest loans are available with an APR of as little as 3.23 per cent, but typically applicants have told Saga that they are more likely to be offered an APR a little over eight per cent.
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The research also criticised inflexible acceptance criteria within the mainstream lending market, which it said meant that older people, or those with a low wage but income from other sources, were rejected for loans even if they were perfectly capable of paying them back.
“Our customers have told us they have a clear need for borrowing later in life, whether that is for home improvements or to pay for children’s education, and they are finding it frustrating to be turned down because of their age or offered rates much higher than the one they applied for,” said Nici Audhlam-Gardiner, managing director, Saga Money.
“These are often people with a pension or investment income or part time earnings who are able to cope well with loan repayments, but find themselves shut out of the market, because only their pay slip is being taken in to account.
“It is time the market changed with evolving lifestyles.”
P2P lenders tend to be smaller and more nimble than high street lenders, with transparency of charges used as a key selling point for borrowers and investors.
Zopa, the UK’s largest and oldest P2P platform, says on its website: “There are no hidden charges so both our investors and borrowers get a good deal.
“We charge borrowers a low, transparent fee once their application has been approved. This is added to the loan amount and is included in all our APR quotations.”