Have you been refused a loan? Did you apply for a personal loan and get the dreaded “application declined” message online? Or perhaps you received a letter after applying through your bank. Either way, being turned down for a loan or any other form of credit can be dispiriting, particularly when you’ve already made plans for a big purchase, a holiday or simply wanted to consolidate existing debts by rolling them all into a new loan.
It’s likely that a poor credit rating is the reason that you are finding it hard to get a loan. There could be a number of reasons that you’re in this position. You may have made a few late repayments on your credit cards or there could be something more serious on your credit record like a default or county court judgement. You’ll be able to rebuild your credit rating given time but, in the short term, being turned down for a loan does not have to be the end of your dream.
The UK credit market is large and constantly expanding meaning that there is a wide range of alternatives ways to borrow money even if your bank or another mainstream lender has turned you down. For those with impaired credit ratings, other lenders will, in all likelihood, be prepared to lend you money. However, you may have to pay higher interest rates and the amount that you want to borrow may be lower than you had hoped for.
So, what are your options?
Homeowner or secured loans
For borrowers who own their own houses and have sufficient equity (the difference between a home’s value and the outstanding mortgage balance on it), the options are wide and there are several lenders who may be willing to offer sizeable sums. These range from anywhere between £10,000 and £100,000. Some lenders will be prepared to consider much higher amounts, possibly up to £300,000. If you live in a home with shared ownership, are a tenant or live in social housing then you won’t be able to apply for a homeowner loan.
If you need to borrow a larger sum, then homeowner loans may be the best option and, like mortgages, they are available with very long repayment schedules. These can often stretch to 25 or even 30 years. If you are planning to make a major purchase – perhaps some home improvements, a new vehicle or to take a really special holiday – then a homeowner loan will allow you to keep your monthly repayments to a minimum and let you incorporate the repayments into your budget over the long term.
These long repayment terms are available because the loans are secured against the applicant’s property. This also means that the interest rate a borrower faces will probably lower than with a personal loan or other forms of credit designed for people with impaired financial histories.
These interest rates offered are usually variable. This may mean that they could go up at some point in the future, which might mean that you will struggle to make the repayments. If this were to happen, then you might face repossession when the lender will go to court to force the sale of your home to recover the loan and any outstanding interest.
Just because your bank turned you down for a loan, doesn’t mean that all your options have been exhausted. There are a number of lenders with loans, which are designed for people with poor credit ratings. Those with significant problems – like CCJs and defaults – might struggle to access these products, though. If you have only made a few mistakes then it’s possible that you might be eligible for a personal loan from a specialist lender. While you will have to pay a higher interest rate than on a loan from your bank and the loan amounts are slightly lower, the application process is just the same as for other forms of credit. Most of these specialist lenders will have more relaxed lending criteria than the banks.
The interest rates on sub-prime unsecured loans vary between 35 per cent and 60 per cent with repayment schedules that are similar as for other loans: anything from one to seven years. The amounts available also vary between £500 and £10,000.
Where you have a particularly poor credit rating or have yet to develop a sufficient financial history to borrow on your own, a guarantor loan could allow you to borrow what you need with the help of a third party. Amounts of anything from £500 to £12,000 are offered when you are able to use the security provided by a third party – a close friend, a family member or somebody you work with. This person is named on the credit agreement and becomes liable for the repayments should you get into difficulty. With a guarantor loan, there is rarely a credit check performed on the applicant because the lender looks at the guarantor’s credit score. You don’t have to own your own property to apply – applications from tenants are welcome.
These are cooperative organisations, which are community based and serve the needs of local savers and borrowers. Their members own them in the same way that the old mutual building societies used to operate. Credit unions are growing in popularity and generally have lower interest rates on lending than other specialist lenders. One thing to remember is that you may be asked to open a savings account with a credit union before it will consider offering you a loan.
Article provided by Mike James, an independent content writer working together with technology-led finance broker Solution Loans, who were consulted over the information contained in this post.