Bundled and tied products

12/01/2023

It has surely happened to you more than once: you go into the supermarket to buy bread and come out with a couple of other things... This everyday scene can happen when you are going to sign up to a financial product, as the bank can offer you several products and services together with the one you want to sign up to.

This situation is more common when applying for financing, when the customer may be more inclined to accept certain conditions of the bank as they need these funds more or less urgently. And it has been especially common in the case of mortgage loans. Therefore, with the aim of protecting the consumer, legislation regulates the sale of products or services together with mortgage loans, distinguishing between tied and combined products:

• Tied selling is when the loan is offered as part of a package with other products and must compulsorily be arranged with them. This practice is not permitted, with certain exceptions such as tying the loan to the opening of savings or current accounts necessary for the settlement of loan repayments. Lenders are also permitted to require insurance against damages or loan repayment insurance, but with the obligation that the customer is able to choose the insurer, i.e. they cannot impose the insurer.
• In the case of product bundling, the package of products can be offered, but the products must also be offered individually, so that the borrower can sign up solely to the financing. The bank must point out the differences between one offer and the other. Often, signing up to ancillary products/services involves an improvement in the loan conditions.

When you receive offers from various institutions in which the loan is accompanied by other products and services, their comparison is more difficult. Institutions are obliged to issue certain warnings and to provide us with specific information about these products in the pre-contractual information in order to make it easier for you to compare products, but there are some things you should not forget so as to be able to analyse your alternatives properly:

• Analyse whether the products they offer are of any use to you, and that they do not duplicate something you are already signed up to.
• Compare the alternatives offered by other providers for these additional products.
• Bear in mind the rate reduction that arranging these products may entail, but also the costs involved (for example, taking out insurance can lower the loan rate by 0.3%, but don't forget the premium that you will have to pay every year).
• Calculate the effect, if any, of cancelling these products.
• Weigh up the benefits and the risk of losses that the associated products may entail, in the case of investment products.

Study the pre-contractual information that is given to you carefully in order to make a good comparison of the offers received. Simulators can also help you.