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:
“Optimism. The doctrine or belief that everything is beautiful, including what is ugly.”
—Ambrose Bierce (1842–1914)
“But the relationship of morality and power is a very subtle one. Because ultimately power without morality is no longer power.”
—James Baldwin (1924–1987)
“Collective guilt is borne by what is conventionally called the scapegoat. Now the scapegoat for white society—which is based on myths of progress, civilization, liberalism, education, enlightenment, refinement—will be precisely the force that opposes the expansion and the triumph of these myths. This brutal opposing force is supplied by the Negro.”
—Frantz Fanon (1925–1961)