What is an Assessment Rate?

A bank assessment rate is the interest rate a bank uses to assess a loan application. It is the rate the bank uses to determine whether a borrower is eligible for a loan and, if so, what the terms of the loan should be. The assessment rate takes into account a variety of factors, including the borrower’s credit score, the type of loan, the loan term, and the amount of the loan.

For example, the advertised interest rate may be 4.5%, but the bank/lender may assess their potential customers based on an assessment rate of 8% to provide a buffer in case of a default. This is to ensure that even if the cash rate were to go up, the borrower would still have the capacity to cover their ongoing repayments.

The assessment rate is different from the actual interest rate that a borrower will pay. The actual interest rate will depend on a variety of factors, including the assessment rate, the lender’s risk profile, and the borrower’s credit score. In general, borrowers with a higher credit score and a lower risk profile will be offered a lower interest rate, while borrowers with a lower credit score and a higher risk profile will be offered a higher interest rate.

Why don’t they publish their assessment rate?

Banks do not generally publish their assessment rates because they are internal rates that the bank uses to assess loan applications and determine the terms of a loan.

The assessment rate is not intended for public consumption and is not published by the bank. Instead, banks publish the actual interest rates that are available to borrowers, which are the rates that borrowers will pay if they are approved for a loan.

Why do assessment rates go up as interest rates rise?

As a general rule, when interest rates go up, it becomes more expensive for banks to borrow money. This can increase banks’ assessment rates to evaluate the risk of lending to individual borrowers. This is because a higher interest rate can make it more difficult for borrowers to repay their loans, which can increase the bank’s default risk. As a result, banks may increase their assessment rates to compensate for the increased risk.

However, there can be other factors at play as well. For example, if the overall economy is improving, banks may feel more confident about their ability to recover the money they lend, which could lead to lower assessment rates. Similarly, suppose a borrower has a strong credit history and financial profile. In that case, the bank may feel more comfortable lending to them, even if interest rates are high, which could lead to lower assessment rates.