Case Study: don’t pay more for a brand name

  • Lender A—5.00%
  • Lender B—5.10%
  • Lender C—5.25%
  • Lender D—5.30%

On a $300,000 loan, Lender D costs $1,200 more every year than Lender A.

Lenders A, B, and C are smaller lenders that the customer hasn’t heard of before, while Lender D is a discount package from a major bank that does a lot of advertising. Some people will choose Lender A, but many will choose Lender D, the most expensive one.

Lender D is still a very good loan; it’s just not the best they can get. Put simply, the typical borrower is usually prepared to pay more to borrow money from a lender they are familiar with. In the finance industry, that usually means a lender that spends a lot on advertising.

As in every industry, there are companies who provide a less expensive product because they keep their advertising costs down, and those that provide a more expensive product but spend large sums on television advertising.