A financial services comparison site has announced the launch of a new marketplace aimed at helping borrowers find out their chances of approval before applying for personal loans.
RateCity’s new personal loan marketplace is intended to help borrowers understand the probability of getting a personal loan approved and the rate they are likely to be offered by lenders without it affecting their credit score, which the comparison site claims many borrowers don’t know.
“As a result, people are often drawn in by low advertised rates, only to be shown a higher rate after the lender has assessed their credit risk,” RateCity said in its announcement.
Through the use of a prospective borrower’s basic details (e.g. driver’s licence, address, employment status and loan details), the marketplace is able to perform a soft credit check with Equifax followed by a pre-check with lenders in the marketplace based on their pricing systems.
A list of loan options is then presented to the prospective borrower, along with probable interest rates and the likelihood of approval.
The comparison site’s CEO, Paul Marshall, explained: “Until now, the only way of working out whether you’d be approved for a personal loan was by applying to each individual lender. Not only is this time-consuming, but every application puts a mark on your credit file.
“Our new marketplace stops people from taking a stab in the dark.
“We want to arm personal loan customers with tools and knowledge that will help them get the best deal possible.”
The Productivity Commission, in its final report on competition in the Australian financial system, identified price obfuscation as a significant problem in the lending industry, resulting in poor consumer outcomes.
“The absence of accessible public data on actual prices is a distinguishing feature of this industry,” the PC report stated.
It added that discounts offered on standard variable rates are generally not publicly accessible, and further, that the rate borrowers will pay are revealed once they are well into the application process.
Additionally, bundled products, such as those that combine mortgages with other credit products, “further obscure the actual value and comparability of individual components”.
What’s more, a single financial product can have multiple prices structured in different ways based on borrower characteristics or on what the bank is looking to achieve, like acquiring a new customer.
The onus is currently on customers to negotiate prices with banks, the PC said. However, lack of price transparency leaves them negotiating from a position of weakness.
Tailored comparison lists are “the future”
RateCity’s personal loan marketplace has been developed over the last six months with the help of Equifax and participating lenders such as RateSetter, SocietyOne, Now Finance and Harmoney, who the comparison site said “have worked in lock-step with RateCity, sharing their detailed credit criteria, pricing and approval data, to power the marketplace algorithm”.
Speaking of the launch of the new marketplace, RateSetter CEO Daniel Foggo said: “This launch means Australia is catching up with the UK and US markets, where consumers with good credit behaviour can use similar marketplaces to access lower-rate personal loans.”
Harmoney GM Australia Ben Taylor added: “Tailoring comparison lists to a customer’s unique credit score is the future and we’re excited to be part of it.”
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