A comparison site has launched allowing consumers to compare the actual rates they can get from personal loan and second charge providers based on their credit profile.
Realrates.com is a venture from Stuart Glendinning, former managing director of moneysupermarket.com.
It works by having customers fill out a detailed quotation form, after which 12 loan providers via an API and two second charge brokers, Fluent Money and Ocean Finance, conduct a soft credit search. Then the customer can compare the interest rates personally available to them.
Stuart Glendinning, founder of realrates.com, said: “Real rates is going to take over in the UK – what I mean by that is real rate pricing.
“Irrespective of whether realrates.com is a fantastic success or crashes and burns it isn’t going to stop real rates taking over in the UK.
“If you said to a consumer you can compare representative APRs when taking out a loan or real rates, once you understand the difference it’s a no brainer.
“Real rate is the rate you can benefit from – it’s the rate for you.”
When customers see the list of providers and rates a percentage is displayed. If it’s 100% the customer is guaranteed to get the loan at the given rate or lower, unless they submitted details incorrectly or change the loan amount they require. If it’s 95% that’s the likelihood of being accepted. The rate can’t go up – either the customers gets the displayed rate or lower, or it gets declined.
Glendinning described representative APRs as “completely skewed against the customer”, as realrates.com research found that seven in 10 personal loan applicants don’t get the advertised annual percentage rate.
What is more when a customer applies for a loan in that situation, hard credit searches can affect their credit rating if they are rejected.
Talk of representative APRs being flawed isn’t new.
In 2009 Martin Lewis of MoneySavingsExpert said to the Treasury Select Committee: “Well, of 100% of applicants, 70% will be rejected. Of this remaining 30%, 20% will get the rate advertised and 10% will be offered a different rate. So, of 100 people 70 get rejected, 10 get a different rate and 20 get the advertised rate.
“I think it is a mammoth rip-off. It is a completely hidden charge. It is a way of allowing lenders to advertise what looks to be hideously competitive rates… to come on top of the ‘Best Buy’ tables.
“It is absolutely a hidden scandal.”
Glendinning’s venture is the first ‘real rates’ comparison site in the UK, but there are others in Sweden (https://www.lendo.se/) and Germany (https://www.check24.de/).
Open banking has effectively opened the door to the introduction of this new kind of comparison site.
Not that every provider is capable of providing a ‘real rate’. Currently 60% of the personal loans market has legacy systems so realrates.com can’t use them, while the same can be said for some secured loan lenders.
Glendinning added: “Not much has changed in loans in the last 20 years. But a whirlwind of change is coming into the loans market. The most important is real rates pricing, which is going to kick into touch rep APRs.
“They won’t be able to put the genie back in the bottle. Once customers realise they can compare real rates they won’t use rep APRs.”