Bank move spells out loan offer

A new move by The Co-operative Bank to assign personal loan interest rates according to credit scores is formalising a process already used by many lenders, one banking expert says.

The bank said it was implementing new pricing to reflect the creditworthiness of personal loan applicants.

Those with the best credit ratings could access an interest rate of 9.5 per cent, compared with 19.5 per cent for the poorest scores.

The Co-operative Bank also offers further discounts off the rate if the borrower has their main income paid into an everyday account with the bank, and 0.5 per cent off if they have insurance policies with it.

The bank said most customers would get a rate of 13.95 per cent, which could be reduced to 12.45 per cent if the discounts were applied.

Claire Matthews of Massey University said other lenders were already doing something similar.

NZCU Baywide makes it clear on its website that borrowers with a higher credit rating could expect to be able to access a larger personal loan at a lower interest rate.

Unsecured loans are offered with rates ranging from 11.9 per cent to 23.9 per cent depending on the riskiness of the borrower.

Westpac says on its website that its personal loan interest rates are tailored to borrowers.

‘‘We’ll consider things like your financial position and credit history to come up with a suitable rate and loan term that’s specific to your needs,’’ the site says.

Matthews said: ‘‘The key difference I see with the approach of The Co-operative Bank is that they are being very transparent, but clearly stating the interest rates relative to credit scores.

‘‘The other key point to note about credit ratings is that they have been changing with the move to comprehensive credit reporting.

‘‘Consumers should regularly check their credit history.’’

Comprehensive credit reporting means that payments made on time are recorded as well as defaults. More information about borrowers is shared by banks, utility companies and other credit providers.

Matthews said the emergence of providers such as Credit Simple, which allows people to easily find out their credit rating, could help those wanting to keep track.

Credit Simple spokeswoman Hazel Phillips said: ‘‘Our research shows that 9.2 per cent of Kiwis have a credit score of more than 900. Once you achieve this, you’re in a much better position to negotiate better deals and lower interest rates – not just on a personal loan, but also your mortgage.

‘‘If you’ve got a good credit score you should milk it.’’