So is this just another type of risk-based pricing?
In recent years, a bunch of Aussie personal loan lenders have adopted risk-based pricing. It’s a tiered system of pricing whereby a lender offers an interest rate based on a customer’s credit rating.
However, offering a rate based on a borrowing term is a lot less common. In fact, according to the Mozo database only three lenders have this system in place: SocietyOne, Teachers Mutual Bank and Queensland Country Bank.
Mozo Banking Expert, Peter Marshall explains that this type of tiered system is just another version of risk-based pricing.
“In this instance, lenders are looking at customers opting to borrow for longer terms as higher-risk,” he said.
“This is possibly based on their own experience. These lenders may have found that people with longer loans are more likely to have problems over the life of the loan.”
He also said that, while it’s hard to tell he wouldn’t be surprised to see other lenders adopt this sort of pricing mode. However, it may take time.
Do these tiered rates only benefit customers on a shorter term?
Marshall says that like pricing based on credit history, interest rates offered on different loan terms don’t only benefit those on one side of the fence.
“It’s a win win for borrowers that opt for a shorter loan term as they will not only pay off their loan soon but receive a lower rate,” he explained.
“On the flip side, if you are a borrower that can’t pay off your loan in say three years, you may receive a higher rate, but at least there is still the option to borrow money. Some lenders may not give you the ability to take out a longer loan at all.”
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