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Shawbrook Bank calls into question ‘teaser’ rate marketing of personal loans

06 June 2018

Shawbrook has reinforced its commitment to its personal loan customers with its five-point Transparency Charter. The Charter accompanies the release of a new report commissioned by Shawbrook which calls into question the use of ‘teaser’ or ‘representative’ APRs advertised in the personal loan industry. The report, which was produced by the Centre for Business Economics (Cebr), draws on a wealth of data from the personal loans industry as well as research from a survey of 1,500 UK borrowers.

The findings show that unsecured lending to households is growing in scale in the UK with the value of outstanding consumer credit reaching £209bn as of February 2018 compared to £196bn at the same point in 2017.

As the market has steadily grown so too has lenders use of representative APRs to market personal loans, which in some cases involve “hooking” customers into applying before offering them a more expensive rate at the end of the process. This has led to a widening gap between the interest rates being advertised and the interest rates actually being paid by consumers.

The average APR paid by a borrower for a fixed rate personal loan is currently 7.3% whereas the representative rates advertised by leading UK lenders for the average loan value (of £9,000) ranges from 2.8% to 4.9% . Based on the total value of loans issued in the UK over the last year (estimated to be £40 million), Cebr’s analysis reveals this interest rate differential will have cost UK consumers £204 million.

Furthermore, 4 in 5 (83%) loan applicants surveyed expect to get representative rates but rules state just over 1 in 2 (51%) are required to be offered the advertised headline figure.

Paul Went, Product and Markets Director at Shawbrook Bank, says: “The conclusions from the Transparency Charter study are clear, so-called representative rates are actually unrepresentative of reality for too many borrowers and it has a negative effect on everyone. A widening gap between expectation and reality when it comes to loans is bad for all concerned.

“The research shows that many consumers feel that the marketing of loans is at best confusing, and at worst misleading. With this in mind, we are making a clear commitment to how we advertise and market our personal loans with the launch of a new Transparency Charter, which is a list of five key promises to our customers.”

Read more about this new report and details of Shawbrook’s Transparency Charter: