UK borrowers hit with £204m interest bill as lenders balance pricing of personal loans

08 August 2018

- Lenders could be charging some borrowers higher rates of interest to cover the cost of low advertised rates

- Average borrower surveyed charged £242 a year more on a £10,000 loan than borrower who qualifies for the advertised rates [1]

- Shawbrook Banks calls for an end to ‘teaser’ rates that lead borrowers to think they will get better rate than they may end up with

Lenders are hitting borrowers with an estimated £204 million in extra interest rate charges to potentially subsidise ultra-low ‘teaser’ rates reserved for borrowers with the best credit records, according to a new report commissioned by Shawbrook Bank and produced by the Cebr (Centre for economics and business research).

Analysis conducted by the Cebr suggests how the best-buy rates advertised by lenders are reserved only for those with the best credit histories.

In contrast, some borrowers are being charged higher rates to potentially cover the cost to banks of offering low so-called ‘teaser rates’.

Banks and building societies are only obliged by current regulations to offer the Representative APR on loans and credit cards to 51% of applicants.

It means nearly half of borrowers applying for a loan or credit card may walk away with a higher interest rate than the one advertised.

Figures by comparison site MoneySuperMarket reveal the representative APR advertised by lenders for an average loan value of £9,000 is currently 2.8% to 4.9%. However, the average rate given to a borrower for a fixed rate loan is 7.3%, according to the Bank of England.

The practice could be costing borrowers who don’t get the ultra-low advertised rate, on average, an extra £242 a year in interest on a £10,000 loan, a survey of 1,500 people conducted by Cebr found.

Shawbrook is campaigning for lenders to stop using ‘teaser’ or ‘representative’ APRs that could trick consumers into thinking they will get a lower rate than the one they end up with.  

Last month, Shawbrook launched a Transparency Charter in which it pledged never to use ‘teaser’ rates and always to be fair and open with its clients. To view Shawbrook’s Transparency Charter and its five promises to prospective borrowers in full visit:


Paul Went, Product and Markets Director at Shawbrook Bank says:

“It’s time to consign ‘teaser’ rates to the history books. The only people they help are those who have the best credit scores and, unfortunately, the result for everyone who falls outside of this category is less favourable.

“Borrowers need certainty that the rate they apply for is the one they will get. Without this it is difficult for consumers to make an informed decision about how much money they can afford to borrow. If they expect a lower rate and end up being charged more for their loan they may be under greater pressure to manage their repayments.

“As an industry we should serve in the best interests of all borrowers and avoid measures which penalise some people in order to reward others. We would like to usher in a new age of transparency and openness with customers. That is why Shawbrook launched its Transparency Charter, which we hope will encourage a wider review of industry practice.”

[1] Calculation by Cebr based on the average discrepancy between interest rate offered and Representative APR for consumers who take on a loan despite being offered an interest rate above the Representative APR.