When broadband ads promise superfast connections but Bodyguard still buffers constantly on the iPlayer, then it’s right that the supplier is pulled up. Just this week Vodafone adverts were banned by the Advertising Standards Authority for misleading customers over speeds. So why is every bank and price comparison site allowed to mislead customers when advertising interest rates on personal loans?
When I test-searched the comparison sites for a £9,500 loan over three years, the deals were fantastic. There were five banks jostling to give me loans below 3%. But the real chances of most of us getting a loan at those rates is as likely as finding 100Mbps broadband in the back end of the Orkney Islands. The truth is that as few as six in 100 people get the interest rate advertised. That’s according to Stuart Glendinning, who is the former managing director of MoneySupermarket.com, so he should know.
How do the banks get away with this? Entirely legally, of course. The EU rules say that a lender only has to offer the advertised rate to 51% of successful applicants. “It could mean that just 10 in every 100 applicants are successful and 90 declined. And then only six out of the 10 who are successful then actually get the 3% rate,” says Glendinning.
The comparison sites give customers the sense they are shopping around for the best personal loan rates, but it’s just an illusion, suggests Glendinning. Individuals are assessed and their credit record checked. If you are young, divorced, separated, living in rented accommodation, self-employed, working part-time, an unskilled or blue-collar worker, have moved in the last year, recently changed your job, or have been late with a utility bill payment, then the chances of getting the best rate is zero. “And that’s nearly everybody in the country,” says Glendinning.
Individuals who click on the “best” provider are often offered a rate worse than they could find elsewhere. But here’s the rub: if the person shops around by going to each individual lender to find out what they’ll be charged, each application (even if not successful) is noted on their credit record. Even just two recent searches for a loan on your record means a lender may then decline you. It’s entirely self-defeating.
Glendinning is not completely altruistic here: he’s launching a new comparison site, Realrates.com, which he says will only display the true loan rate an applicant will be offered. It’s much more likely to be about 7%-9% than the 2%-3% in the adverts. The drawback is that few of the big lenders are on his site But Glendinning is on a bit of a mission: he accepts that his new venture could crash and burn, but says the days of the “vested interests” pushing fake APR deals are over.
We should be rightly annoyed that many banks and building societies failed to pass on last month’s Bank of England rate rise. And outraged that one major provider has chosen to cut its Isa interest rate from 1% to 0.75% from next week. Who is this stingy profit-grabber? Oh look, it’s the government’s own bank, National Savings & Investments.
p.collinson@theguardian.com