Taking Out A Loan? 6 Questions Answered
Borrowing money should never be taken lightly. If you are considering taking out a loan, then it’s important that you give some serious thought to whether or not it is the right decision. No matter how much you borrow, or your reasons for doing so, there will come a time when you will need to repay what you have borrowed.
You will need to consider your personal financial situation, the time that you are committing to for repayments, and how the decision to borrow now might affect your financial position in the future. Understanding as much as you can about loans will make it easier to make an informed decision about your loan options.
How will I repay my loan?
After receiving your loan, you will start to make your repayments. These can be very straightforward to manage, and the majority of lenders will offer some of the following options:
- Standing orders: Your repayments will be easy to manage by setting up your bank or building society accounts to make your repayments automatically. This is one of the more convenient options available, although it will be essential that you have enough funds in your account to make your repayments.
- Doorstep Payments: Usually referred to as home credit, doorstep loans are usually smaller than other loan types. However, they have the convenience of being able to make your payments on a weekly or monthly basis when the lender comes to your home to collect. This is becoming a popular option for those who do not need to borrow high amounts.
- Benefits Repayment: If you are on Universal Credit, then you may be able to make your repayments directly from your benefits. This can make it easier to avoid the risk of overspending when every penny counts.
Can you get a loan with a bad credit score?
It’s a well-known fact that if you have a weak credit score, then you will be limited in your choices when it comes to finding the right lender. This doesn’t mean that you will not be able to find a loan. There are now many lenders who will allow a loan even if you have a bad credit score, county court judgements against you, or even a history of defaulting on repayments.
These lenders will often be taking a larger risk if they agree to a loan, and as such, you can expect to pay more in your repayment terms. Legal changes have transformed payday loans, so even those lenders that do make loans to people with bad credit are not able to make disproportionate repayment rates.
What happens if I can’t make my repayments?
Every lender will have different responses to an inability to make your loan repayments. You should always check the terms and conditions of your loan before you agree to it. Most will charge you additional costs, and that can lead to serious financial difficulties that will be reflected on your credit score. Always make sure that you are able to make any payments that you agree to. Circumstances can change of course, and if you lose your job, then it can make repayments more challenging to cope with. Most lenders will have a process in place that will make it easier to tackle a change in circumstances.
What if I apply for a bank loan and it gets rejected?
Sometimes, loan applications are denied. This can be for a variety of reasons and can cause a lot of stress. The important thing is knowing the next steps to take. Make it a priority to:
- Find out the reasons why your loan was refused (most lenders will inform you of the reasons for denying you a loan)
- Learn the wait time before you are allowed to make another application
- Assess what you can do to improve your chances of being approved a loan next time
No matter what kind of loan you are applying for, knowing the reasons for your loan refusal will be the best step to ensuring that you are not refused the next time you apply.
What are the most common reasons for being denied a loan?
The lender will deny you a loan for a variety of reasons. These can be common issues that are easily addressed before you make your initial application, and knowing the most common reasons for refusal will make it easier to tackle them before they become an issue. The most common reasons for a loan refusal are:
- Bad Credit/No Credit: Your history with money will be taken into account by the majority of lenders. There are lenders who will give loans to people with no credit history or a low credit score. Often, having no credit history is harder to resolve than having a bad credit score. Make sure that you understand how your credit score works before you make any loan application from a lender that does not specify that they accept loan applications without a credit check.
- Income Concerns: Your lender will want to know that you are capable of making the repayments that you agree to. They will use a debt to income ratio to make certain that repayments are not going to cause you undue pressure. Your income and living costs will be factored in, and your ability to pay will be assessed. If your income is not high enough, then you may not get approved for larger loan amounts.
How can I improve my chances of getting a loan approval?
Some of the ways that you can increase your chances of getting a loan are common sense. Many of these will require very little work, and there are both long and short term strategies that you can adopt to make it more likely that you get a loan approved.
- Credit errors: If your credit report has any errors included then you need to have them removed. Computer or human error should not result in a negatively affected credit score.
- Pay your debts: If you have a large number of debts in your credit history, then you will have a lower credit score. If you can pay off any of your existing debts, your score will improve.
- Secured loans: If you do not think that you will get a loan approved then you can increase your chances by getting a secured loan. These will use a form of collateral to protect the lender should you end up being unable to make your repayments.
Loans are all about convenience. If you find that you need a cash boost for any reason, then understanding more about how loans work is essential. The more that you understand about loan applications, the reasons for loan refusal, and the repayment terms, the easier your loan will be to manage.