Why transparency is needed for the personal loans industry


Have you ever applied for a personal loan and been offered a higher APR than the rate that was advertised to you?

A recent report commissioned by Shawbrook Bank and produced by Cebr (Centre for Economics and Business Research) reveals that in the last few years, the gap between the APRs advertised by lenders and the actual interest rates paid by the consumer is expanding.

With the cost of living increasing, the number of personal loan applicants is growing. From 2013 to 2017, the average value of outstanding personal loans per household has been reported to have increased in every single region in the UK.

This report examining the UK personal loans market also reveals that the average APR paid for a fixed rate personal loan is currently at 7.3% - which is significantly higher than the APRs advertised by leading UK lenders.

For the average loan value of £9,000, advertised APRs from lenders actually range from 2.8% to 4.9%. Within the Cebr report which included a survey of 1,500 UK personal loan applicants, 13% of those surveyed ended up taking out a loan that is more expensive than they anticipated – which could be due the lower rates advertised. According to the report, this is costing UK consumers a total of £204 million each year in extra interest rate charges.

Therefore, the need for greater transparency between borrower and lender is perhaps more important than it's ever been.


Consumer perspectives regarding the Personal Loan application process

Out of the 1,500 people surveyed that have applied for a personal loan in the last two years:

  • 83% expected to be offered the Representative APR when making their application.
  • 63% felt the fact that the Representative APR advertised only has to be offered to a minimum of 51% of successful loan applicants was misleading.
  • 22% were unaware of the fact that the personal loan application process could affect their credit score, prior to starting the process.

The findings of the survey state that when asked how they would make the application process more transparent, the most popular response from recent borrowers was for the lender to provide more clarity about what their personal APR would actually be from the outset.


Why transparency is important

Transparency throughout the personal loan application process enables borrowers to make better-informed decisions in relation to their personal finances.

With the personal loans market working for the interests of the consumer, personal loan applicants are more likely to have a better borrowing experience. The Cebr report argues that in a climate where consumer credit had been steadily on the rise since 2014, a transparent personal loans market will be essential in enabling consumers to select the most appropriate option for them.

At Shawbrook, we’re committed to transparency by putting the customer at the heart of everything we do. This message is clearly outlined in our Transparency Charter – which is built upon five promises. 

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We strive to be honest, upfront, open, clear and fair with our consumers.

  1. Honest – We won’t use teaser rates as we feel they are misleading. From the get-go, we’re honest about the APR you’ll be offered when you take out a personal loan. Before you even apply for a loan, you’ll get quote for your guaranteed personalised loan rate.
  2. Upfront – We will only grant you a loan if we believe it’s feasible for you to afford, based on an assessment of your own personal financial circumstances. We’ll let you know whether you’d be accepted before you apply.
  3. Open – Getting a quote from us won’t affect your credit rating. We realise that it’s important for customers to get the right rate for them – so you won’t pay the penalty for simply shopping around with us. Before you formally apply for a personal loan with Shawbrook, we use a soft credit search which enables us to assess your credit score without leaving a footprint visible to other lenders.
  4. Clear – Clarity is another essential promise. We want to make things simple and clear – so you know exactly where you stand from the very beginning.
  5. Fair – We promise to never charge some of our customers more in order to subsidise other customers who may have been offered better rates.

If you’re keen to learn more about our personal loans, then head over to our dedicated transparency page while you’re here.

It includes a variety of videos on the important aspects to bear in mind when considering your application for a personal loan.  There is also more detail about APRs, soft searches, quotations, credit scores and debt consolidation.

Getting a personalised quote for a Shawbrook loan won’t impact your credit history. Loan terms are available from 1 to 7 years – and loan amounts available to borrow range from £1,000 to £50,000.

We will also offer you a fixed rate with fixed monthly repayments over the whole term. You’ll know your guaranteed rate before you even decide to apply.  

If you’re thinking of applying for a personal loan and would like some more information, visit our personal loans page.