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
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