Pricing, Including Risk-based Pricing & Relationship Based Pricing
Pricing policy varies a great deal. While you probably can't influence the pricing policy of a given financial institution, you can:
- Shop around
- Ask for a better rate - some financial institutions will respond to this, some won't
- Price match - many financial institutions will match a rate for a current customer
Pricing is often done in one of these ways. Follow the internal links for more details:
- Everyone pays the same rate. This is an older approach, and most financial institutions no longer use this approach because it causes low risk customers to pay a higher than market rate, while high risk customers get a better rate than they might otherwise get, causing the financial institution to get a lower rate of return on the loan than the risk might imply.
- Risk-based pricing. With this approach, pricing is based on various risk factors including loan to value, credit score, loan term (expected length, usually in months)
- Relationship based pricing is often used to offer a slightly better rate to customers that have a substantial business relationship with the financial institution. This is often a price improvement offered on top of the otherwise computed rate.
Read more about this topic: Loan Origination
Famous quotes containing the words including, relationship and/or based:
“Despotism is unjust to everybody, including the despot, who was probably made for better things.”
—Oscar Wilde (1854–1900)
“Some [adolescent] girls are depressed because they have lost their warm, open relationship with their parents. They have loved and been loved by people whom they now must betray to fit into peer culture. Furthermore, they are discouraged by peers from expressing sadness at the loss of family relationships—even to say they are sad is to admit weakness and dependency.”
—Mary Pipher (20th century)
“A marriage based on full confidence, based on complete and unqualified frankness on both sides; they are not keeping anything back; there’s no deception underneath it all. If I might so put it, it’s an agreement for the mutual forgiveness of sin.”
—Henrik Ibsen (1828–1906)