The Co-operative Bank adopts risk-based pricing for its personal loans, bringing sharp interest rate benefits to …

In what is likely to be the start of a growing trend at banks, the Co-operative Bank has re-priced its personal loans on a risk-based basis.

Banks have had fixed carded rates for this type of lending for a long time with the only distinction being whether the loan was unsecured, or secured on other customer property.

But the emergence of positive credit scores in New Zealand, and the coming of peer-to-peer personal lending which started with risk-based pricing, banks are finding they need to respond with similar plans.

A single carded rate takes little account of the customers credit profile. Rivals that reward good credit histories find they can attract such customers with lower rates which leaves those that dont offer such benefits with a pool of clients with worse credit histories.

For this reason alone, the personal loan market will move this way. Personal loan borrowers are about to find out the real value of good credit.

The new Co-operative Bank loan pricing signals how this may work.

Their ‘risk-based’ approach considers factors such as a consumer’s credit bureau score, adverse credit history (if any), employment status and income.

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