How low do rates go? For most, not as low as advertised

Be careful when applying for credit card and personal loan deals that advertise interest rates 'from' a low rate. Research by internet bank Egg has found that lenders that offer this type of product, with rates dependant on how much risk they perceive an applicant to be, only offer their lowest rates to a handful of customers.

Egg commissioned 200 NOP researchers to apply to four UK credit card and personal loan providers that offer 'risk-based' credit: Barclaycard, Capital One, Lombard Direct and Abbey National. Fifty applied to each provider during January and February to see what rate they would be offered. With credit cards, 32 per cent of applicants were offered Capital One No Hassle Platinum's lowest advertised rate of 11.5 per cent APR, while the average rate offered was 14.8 per cent APR, but only 4 per cent got Barclaycard's lowest rate of 11.9 per cent and the average rate offered was 18.6 per cent.

Those applying for personal loans fared even worse - only 4 per cent of applicants were offered Abbey National's lowest rate of 6.6 per cent APR while the average rate offered was 8.1 per cent, and none was offered Lombard Direct's lowest rate of 7.9 per cent APR and the average was 8.5 per cent.

Egg also asked the researchers to report whether the provider made it clear up front that the offered rate would depend on the applicant's credit score: 71 per cent claimed they did not.

The Consumer Credit Act requires lenders who price for risk to display their 'typical rate' most prominently. But Egg found that lenders often displayed their lowest rate most prominently, and that in all cases the NOP mystery shop revealed that the average rate offered was higher than the lenders' advertised 'typical' rate.

Mark Nancarrow, Egg's chief executive, says: 'This is again an example of the UK financial services industry knowingly flaunting loose advertising standards guidelines and therefore willingly exploiting the consumer.'

Barclaycard says Egg's methodology is 'slightly ingenuous' because the bank has quoted averages rather than other figures, which would have shown that 80 per cent of the Barclaycard applicants were offered a rate of 17.9 per cent APR or less.