The Analysis Comment


Will ‘real rates’ loan searches be open to sub-prime market?


How will a move to real-rate APRs impact borrowers across the lending spectrum?


Sarah Jackson Director, Equiniti Credit Services


Let’s talk about representative APRs: those enticing little percentages that influence a consumer’s decision to apply for one loan product over another. Far too often, excitement turns to


disappointment when they get down to the fine print and discover that the headline percentage was too good to be true, usually after going through the extensive application process.


Take it or leave it According to the Financial Conduct Authority, 51% of people will be accepted at the representative rate or better. That leaves the other half in a take-a-higher-rate-or- leave-it situation. They may also walk away with a hard


search on their credit file and a failed application to boot. Last year, we surveyed 2,000 of our UK


consumers and found that 86% of consumers use price-comparison sites to shop around for the best loan product for them. And it is on these sites where representative


APRs determine the position a lender will take on the ‘best buy’ table they present to the borrower. That usually means that ‘super-prime’


more prevalent across the industry. Where one pioneer goes, others follow.


Game changer From a consumer point of view, real rates are a real game changer. Sadly, however, they only change the game for those who already have good credit scores in the first place – and, paradoxically, are therefore the least likely to need it. This is because the technology interface


required to access the real-rates system is, for now, something that only a select number of prime and super-prime lenders can afford or have the technical ability to integrate with their legacy systems. As a result, smaller lenders – who often


appear at the top when, in reality, these products are only available to those with stellar credit ratings. Inevitably, this mis-guide leads to failed applications from consumers who, not unfairly, assume they are clicking on the best deal for them


That usually means that ‘super-prime’


lenders


lenders appear at the top when, in reality, these products are only available to those with stellar credit ratings. Inevitably, this mis-guide leads to failed applications from


consumers who, not unfairly, assume they are clicking on the best deal for them.


New comparison site So, the launch of a new price-comparison site, realrates.com, which promises to display only the real APR rates that each consumer will ultimately be approved for, should be welcomed as a force for good. And, in the era of open banking, and with similar sites popping up across Europe, we can expect to see the real-rates approach become


September 2019


cater to the sub-prime market – are either priced or bamboozled out of the equation. The access cost and systems-integration


challenge can only be resolved at scale by specialist technology partners. These firms combine the expertise required to do the technical heavy lifting with the market reach needed to pass along real-rates access as-a- service to the smaller lenders, via a platform that is priced to be accessible to the whole lending market. Fortunately, these platforms are now


starting to emerge, so the market-wide future for real rate technologies is now looking bright again.


Promise realised After all, the promise of a real-rates system can only be fully realised when it is offered by a whole-market lending panel, and as a result, is made available to all consumers. All lenders have a specific set of rules and criteria that a potential borrower must meet to secure credit. Good credit rating or bad, an affordability assessment should be


at the centre of a lender’s decision, not a representative APR, and certainly not because they cannot, or cannot afford, to implement the technology. CCR


www.CCRMagazine.com 11


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44  |  Page 45  |  Page 46  |  Page 47  |  Page 48  |  Page 49  |  Page 50  |  Page 51  |  Page 52