Hunting for a personal loan can be a frustrating experience. Not only may you not get offered that eye-catching headline rate, but applying for multiple loans can dent your credit score.
Asda Money has launched a new personal loan tool that allows borrowers to see whether they will be accepted and what rate they will get without hurting their credit ratings.
Similar searches, including This is Money’s powered by MoneySupermarket, already exist but Asda reckons its tool takes things on a level by delivering a fully tailored quote.
However, with only some lenders on its books is it worth using and what are the merits of such tools? We take a look.
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Why has the service been launched?
Asda Money’s new tool, powered by online broker Freedom Finance, runs a soft-search of customers’ credit scores and looks at individual lenders’ score sheets to bring up a list of tailored quotes.
It claims rates start from just 2.8 per cent – the cheapest rate currently available – but only a handful of personal loan providers are on its books.
One of the major pitfalls of applying for a personal loan is that to find out if you are going to be accepted, and what rate you can get, you have to apply first.
As with every credit application you make, this requires the lender to run a search of your credit file to see if you are a safe bet to lend to – which in turn is recorded in your history, often known as a hard credit footprint.
If you have a spotless score and you get accepted this isn’t a problem but if you are turned away and you apply again for a different loan or another form of credit it may affect how favourably other companies view your application as multiple applications could be interpreted as you’re desperate to get the cash.
Any tool that allows you to get a better idea of whether a lender is likely to accept you or not before application stage can therefore help you avoid wasted applications and get a better idea of which products to apply for.
Some individual providers offer the feature themselves along with some comparisons sites such as the smart search tool (below) from This is Money’s carefully chosen partner service Money Supermarket.
According to Asda Money however, its tool goes one step further, offering not just an estimate of the likelihood that you will be accepted but a fully tailored quote according to each individual lender’s scorecards and your own circumstances.
Only 51 per cent of loan customers must be offered the rate lenders advertise, which means that up to 49 cent of those who make it past the first hurdle and get accepted will find they are offered a worse rate than they applied for.
The rate you are offered will be calculated according to your individual circumstances, including your credit rating and income.
The rates are not guaranteed, but Asda Money claims they are very close.
Individual lenders may require additional information based on a full credit check and any application answers but in the majority of cases the rate offered through the Freedom Finance calculator will be the one they get after a full credit search but the lender themselves.
So how does the loan calculator work?
Freedom Finance is an online loan broker that works with 13 different unsecured loan providers (along with 10 secured loan providers) according to its website, and is authorised and regulated by the Financial Conduct Authority.
The new Asda Money loan tool is powered by the broker but borrowers will be able to access the tool on the supermarket bank’s own website.
Borrowers using the site are offered exactly the same rates as they’d get from the providers directly, excluding Zopa which offers a better rate for going directly.
The main selling point of using the borrowing calculator is the ability to see what they are likely to be offered from a range of lenders before they dive in and apply.
It claims to give borrowers real-time accurate quotes, based on their own credit rating and income.
Alongside a soft-search of your credit file, it asks a number of questions about whether you have a mortgage, your employment, salary, other income details and of course your name and address etc. It then brings up a list of lenders and the deals it thinks you will get.
Katie Walley, head of Asda Money, says: ‘We will consult with a panel of trusted lenders through Freedom Finance to be sure we’re offering customers the best loan for their circumstances and rest assured thanks to our soft search technology, there’s no effect on customers’ credit rating – something we don’t feel is fair.’
This is Money’s verdict
It is certainly a useful tool, taking much of the guess work out of applying for a loan – particularly for those who may not have the best credit rating.
But it doesn’t have the best choice of loan providers signed up.
While it claims to offer rates from as little as 2.8 per cent, Freedom Finance – and Asda Money’s new tool – doesn’t offer whole of market comparisons and it won’t offer loans with some of the cheapest providers, which include competing supermarket banks M&S, Sainsbury’s Bank and Tesco Bank.
But its list does include the likes of Hitachi Personal Finance and peer-to-peer lenders Zopa and RateSetter, which frequently feature high up the comparison tables with near or best-buy personal rates.
The rest of its line up are made up of little-known names and guarantor loan providers.
So it may be useful to combine a soft search through Asda Money with an eligibility calculator offered by an individual lender, credit referencing agency or a comparison site.
When This is Money looked, someone with an excellent credit rating is quoted a headline rate of around 3.4 per cent using the Freedom Finance search tool.
For more help finding the best rates, This is Money has a regularly updated round up of the top rates currently on offer depending on how much you want to borrow.
COMPARE THE TOP PERSONAL LOANS
Before you decide to take out a loan think carefully about whether you will be able to afford the repayments, and how you would cope should your circumstances change.
>You can use our loan repayment calculator to help
If you do want to borrow make sure you shop around before accepting the first rate you are offered by your bank.
The rate you will be offered, of course, depends on how good your credit rating is and how attractive you look to lenders.
TSB and M&S Bank offer a market-beating rate of 2.8 per cent on mid-sized amounts (between £7,500 and £15,000) followed by Sainsbury’s Bank (Nectar card customers) at 2.9 per cent.
Think carefully about how much you need to borrow as it can have a dramatic effect on the interest you pay.
Amounts slightly below the mid-sized bracket at £5,000 to £7,500 cost from 3.3 per cent with TSB or 3.4 per cent from Hitachi Personal Finance.
The best deal you will find on loans up to £5,000 is 4.4 per cent from peer-to-peer provider RateSetter, followed by Zopa at 5.3 per cent and Lending Works at 6 per cent.
Loans on larger amounts (over £15,000) typically also tend to come with more expensive rates. However, a handful of lenders extend their best-buy deals to larger sums.
TSB offers its market-beating 2.8 per cent rate on amounts up to £20,000, followed by the AA and Hitachi Personal Finance at 3.3 per cent.
First Direct 1st Account customers can grab a 3.3 per cent rate but on up to £30,000 over a repayment term of up to seven years. The bank offers the largest amount on the market at £50,000 but you will pay 6.7 per cent.
Tesco Bank Clubcard customers get up to a maximum £35,000 at the same rate.
>For more on applying for a personal loan and our pick of the best deals, read our regularly updated guide here