Getting the rate you want

If Jobs & Money readers are anything to go by, nothing seems to anger consumers more than unavailable offers. You spot an advertisement for a loan or a credit card, offering what looks a great rate, but when you get your approval notice, you're put on to a far more expensive loan.

Increasing numbers of lenders are now making offers according to your ability to pay. Only those with the best credit records are getting the headline rate - the rest are put on an APR that can be as much as twice as the figure quoted in the advert.

However, this is all about to change. An update to the consumer credit law that comes into force on October 31 demands that personal loan providers must offer the advertised rate to at least two-thirds (67%) of successful applicants. At the moment, they are only required to give it to 51%.

This will have a big effect on the way such companies offer loans. In particular, it could force several lenders to up their advertised rates to reflect the changes.

And one industry commentator is already predicting that consumers will come under renewed pressure to take out expensive payment protection policies as the lenders seek to generate their revenue streams elsewhere.

You may not know it, but if you're borrowing money, you've never had it so good. Interest rates or APRs charged by loan companies have never been closer to the Bank of England's base rates - for the first time ever banks and building societies are offering APR rates that are less than 1% over base.

Richard Mason, director of personal loans at moneysupermarket.com says he has never seen so many lenders battling to get market share.

"At present, there are five personal loan providers with rates under 6%, with Northern Rock leading the way at 5.6% APR. With the base rate at 4.75% and expectations that there will be a rise at least once more before the end of the year, these are "typical rates" that defy logic.

"The new two-thirds rule is a welcome move and is one that helps consumers to be confident they are more likely to get the rate they have applied for. However, it is also bound to add pressure on lenders to raise rates that already look unsustainably low.

Tim Sawyer, head of Abbey's internet banking arm Cahoot, agrees that the changes could put pressure on some loan providers to increase rates.

"At Cahoot we aim to offer around 80% of applicants the advertised rates so the new rules will not impact on our business. That said, I can see plenty of others who do play the numbers games having to change their advertised rates to meet the two-thirds rule," he says.

"One other likely impact of the changes will be that more applications will simply be refused. Some credit card providers are increasing adopting this stance - they'll decline the application for the 6.7% APR, but offer a completely different card charging 11.9% instead."

One factor that may keep loan rates down is the intense competition in the market place. Earlier this week the British Bankers' Association reported that the number of new mortgage applications is now at its lowest level for three years. With the housing market slumping round the country lenders are chasing a shrinking market.

Lloyd East, director of AA loans, is one person who believes that competition will more than offset any upward pressure on rates.

"The cost of borrowing has been consistently falling over the past two or three years and we don't believe the change to two-thirds of applicants getting the advertised rate will force an upward pressure on APRs. The AA doesn't anticipate any difficulty in meeting the new obligations," he said.

But one thing the low cost of borrowing does, says Richard Mason, is to force lenders to seek alternative sources of income. "I feel that consumers are going to come under increased pressure to take out payment protection insurance. With rates so low, the lenders only need 1% of borrowers to default and their profits will disappear. PPI is very profitable source of income for the banks - 80% of the cost of the policy is straight commission.

"When I worked for one of the big banks several years ago, I was told to ring up people who had applied for loans and tell them it had been held up for a few days because there was no protection insurance in place. As soon as we said it could proceed immediately if the customer bought a policy costing just 30p a day, three-quarters took it out."

PPI is expensive and often riddled with get-out clauses. Basically, it's of very little value to those who don't need - those with strong job security - but it rarely pays out for those who really need it, such as the self-employed.