The benefits of RBP
Sticking to fixed rates can limit growth opportunities. Dynamic pricing, where rates are adjusted based on risk and market conditions, can attract more borrowers while maintaining profitability.
With RBP, loan interest rates are tailored to a borrower’s credit profile. Lower-risk applicants receive lower APRs, while higher-risk borrowers are charged higher rates.
This strategy helps credit unions lend in a way that’s both fair and financially sustainable, offering affordable options to those who qualify while managing risk appropriately.
By introducing RBP, you can:
Offer competitive rates to your strongest applicants.
Price higher-risk loans appropriately without excluding borrowers entirely.
Balance fairness with financial sustainability.
Retain flexibility, as RBP can be enabled only for selected loan products.
Regulatory requirements
This is very important. If your credit union is using Risk Based Pricing, you are agreeing that you have read and understood this section.
Representative APR is defined by the FCA as
"An APR at or below which the firm communicating or approving the financial promotion reasonably expects, at the date on which the promotion is communicated or approved, that credit would be provided under at least 51% of the credit agreements which will be entered into as a result of the promotion."
Representative APR Usage Scenarios
Representative APR (RBP) is typically required in three key scenarios, each with different considerations for meeting the 51% threshold:
1. Static loan pages
For established loan products on your main website, base the 51% calculation on your historical lending data. NestEgg can provide detailed analytics showing what proportion of approved loans, segmented by product type or loan purpose, fall at or below specific APR levels.
Important consideration: If more than half your applicants have poor credit profiles, they'll likely receive your highest rates. In these cases, using representative APR may not provide marketing value, as you'll be required to display your higher APR.
2. Campaign Landing Pages
For targeted marketing campaigns, base the 51% calculation on reasonable expectations given your target audience. Consider factors such as:
Demographics of the target area within your common bond
Employment characteristics of the audience
Credit profile likely for the specific demographic
Example: When targeting affluent areas where members are more likely to be in stable employment, you may reasonably expect a higher proportion of applicants to qualify for lower rates, justifying a more competitive representative APR.
3. New Products
For products without lending history, base the 51% calculation on reasonable expectations using available benchmarks. NestEgg can help you estimate appropriate rates by:
Analysing performance data from similar products at other credit unions
Providing industry benchmarking data
Comparing against other products in your existing portfolio
Documentation requirement: Ensure you can demonstrate the rationale behind your expectations, as regulators may request justification for new product representative APRs.
Remember: In all scenarios, you must be able to evidence your reasonable expectation that at least 51% of resulting credit agreements will be at or below the advertised representative APR.
Setting up Risk-Based Pricing
RBP can be enabled on any loan product, allowing you to use it where it makes the most sense while keeping fixed pricing on other products.
Tip: Because RBP is a competitive interest rate strategy, a good place to start is for higher value loans targeted to lower risk applicants. For example, Payroll or Personal Loans would be a better place to start than Family Loans because applicants for the latter are less interest rate sensitive.
To get started:
Open the loan product settings
Click the pencil icon next to the product you want to edit.
Go to the Product Details tab.
View the default Loan Amount and APR table
Before enabling RBP, the Loan Amount and APR table will look like this, with just a single APR column:
Enable Risk-Based Pricing
At the top of the Product Details tab, you’ll see a checkbox for RBP.
Tick this checkbox to enable the feature.
After enabling RBP, the table will expand to include five APR columns (Lowest, Low, Medium, High, Highest), allowing you to define different APRs for each risk category:
Configure APR bands
For each band, define an APR that corresponds to the applicant’s assessed risk level.
Example: Low risk applicants will see the Low APR, while High risk applicants will see the High APR.
Tip: ready the article on credit profiling to help you configure the most appropriate rates and align to your risk appetite.
Editing loan amounts and APRs
Double-click the row you want to edit.
Click into the specific cell you wish to update (e.g. APR for Medium risk).
Enter the new value, then click another cell to move on.
Repeat until you’ve updated all necessary fields.
When finished, scroll to the bottom of the Loan Product panel and click Save Changes.
Adding or removing bands
To add a new row (band), click Add Band. A new row will appear at the bottom of the table.
To remove the last row, click Delete Band. Successively clicking Delete Band will remove rows one at a time until only one row remains.
Identifying RBP products in the dashboard
When you open an application in the dashboard the loan product details are provided. This includes details of whether RBP was applied.
In this example the loan product is fixed rate without RBP:
In this example RBP has been applied:
Combining with soft credit checks
Risk-Based Pricing (RBP) will work for products that only use a hard credit check.
However, combining RBP with an initial soft credit check significantly improves conversion rates from applicants to borrowers.
Applicants who are credit-conscious and maintain higher credit scores are more likely to complete applications when they know the initial quote won't impact their credit. Additionally, displaying personalised interest rates based on creditworthiness provides transparency for applicants and attracts more qualified, lower-risk borrowers, especially when the displayed rates are competitive.