Why you’d be wise not to trust interest rates from internet rate charts
It pays to shop around for interest rates. Studies show that you can save about $1,200 just by being aware of different interest rates that you are eligible for. That’s a lot of money!
When you go on the internet looking at rates, you will come across many sites with interest rates posted. These are called rate charts, and they generally have a place to enter your loan information and your credit score, and then display “your rates”.
Here’s an example:
Now, this looks really simple and helpful. You put in a little information in, and it looks like there is competition where you get to pick your rate. Most people think that this is a true marketplace that mines the best rates for you that you are qualified to get.
How it really works
The way these rate charts really work is that the bank puts in their rates on their end – everyone from large banks to small ones, or even independent mortgage brokers. They self-report rates and the best ones get filtered to the top. But, you may never get the rate offered.
Your interest rate is a factor how risky you are to lend to. Your risk is determined by many factors, mostly your debt to income ratio (the amount of money you owe compared with the money you make) your financial assets, as well as your credit history.
The bank can’t possibly give you a binding rate based on credit score alone. None of the rates that you see on these charts are binding, and if they are not binding, they are simply not competitive, they are just ads.
That is why the fine print says things like, “this is a non-binding quote”.
When you do click on a rate, you get funneled into a mortgage company, and your information gets collected and sold as a lead. Sneaky, right?
So what do you, the consumer, get from the experience? You get someone at a bank who now keeps calling or emailing you.
For more information about how companies might give you the bait and switch, read how companies like LendingTree work.
Also, in advance of shopping for mortgages of other loans, check out our free guide on how to raise your credit score for free.