3 min read

Beware of iceberg loans

Many of us will need to borrow money in our lifetime. Therefore, it is important to be aware of iceberg loans so that you are not misled into paying more interest than you are offered.

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Have you ever seen an interest rate advertised by a lender and thought it must be too good to be true? It often is.

This article will explain what iceberg loans are and why they are an issue for borrowers. If you ever need to borrow money, it is useful to know about this trend to ensure you are not caught out.

What are iceberg loans?

Iceberg loans are where lenders advertise a low ‘headline rate’ to attract potential customers. What many people don’t realise is that the advertised ‘headline rate’ only has to be offered to 51% of customers.  The remaining 49% are usually offered a much higher rate. This leaves borrowers with a difficult decision – to accept the higher rate or consider their options elsewhere.

The Times suggest that borrowers often end up paying an interest rate up to 10% higher than the advertised headline rate.

Therefore, it is so important to be aware of iceberg loans. When you need to borrow money, consider your credit profile and personal circumstances. If you think you are unlikely to be offered a very low headline rate by one lender, it is worth considering other lenders which may be more realistic.

This can help you to avoid an unnecessary ‘hard search’ credit check which leaves a footprint on your credit report, for a rate you probably wouldn’t have been offered.

What rate will you be charged?

The tricky part is that with most lenders you will only find out the actual rate you are offered once a credit check has been carried out. Credit checks can leave a footprint on your credit profile which could impact future attempts to borrow.

If your credit score is low, or your personal circumstances do not make you the ideal person to lend to, you will likely be offered a significantly higher rate than what was advertised.

It is very easy to be misled with iceberg loans. If you applied for a debt consolidation loan to clear your existing debt, but were then misled and offered a higher rate, you could end up paying more interest than you were originally.

What you see is what you get

At Serve and Protect, what you see is what you get. There are no hidden fees or early repayment penalties.

If you cannot access the headline rates of banks or building societies, we are here as an ethical and affordable alternative.

Try out our loan calculator to see what you could borrow.


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