There has recently been a renewed interest in lending by all major lending companies like banks and other financers. This is due to a better than expected financial confidence that has been observed in the market after recent economic fluctuations. A British economy spurred on by the real estate sector and a surge in small businesses has managed to keep the general spending going in the country. This has, in turn encouraged banks to approve more applications to small borrowers, whether for personal loans or for small and medium business enterprises (SMEs) looking to establish their ventures.
However, even in this renewed lending compliant atmosphere, the criteria of loan approvals remain stringent. The government owned, British Business Bank has recently published a report that showed that apart from the increase in approvals from traditional lending sources, such as banks, there has been a surge in personal lending as well from other lenders. This has widened the type of information that is considered by an individual lender and as a result, the criteria for approval could be vastly different from one financing company to another. For example, the credit screening for a secured personal loan like a mortgage is far more stringent than that of an unsecured personal loan. The criteria could still vary greatly between lenders for a similar amount for a personal loan. It has, therefore become increasingly important to prepare adequately before taking out a loan as it could potentially save the borrower hundreds of pounds over the course of the agreement.
This article would skim the surface of some common types of loans and examine the approval criteria that are generally associated with them.
According to a recent study conducted by a major online lender in the U.K., unsecured loans form the most common type of lending taking place in the country. These loans, as their name suggests are not secured against any physical asset of the borrower and is determined by the lender on the basis of the eligibility of their client. This eligibility is based on the criteria established by the lender with the primary objective to ensure recovery of the amount lent. Some lenders offer finance options that don’t require comprehensive background credit checks, however, this is reflected in their higher interest rates. These types of loans are meant for certain borrowers in certain circumstances.
Another personal unsecured loan that is extensively common across the U.K. is the use credit cards. The U.K. is the biggest credit card market in the European Union with more than 94 million activated cards. The interest rate of using credit cards varies from borrower to lender and any promotional campaign that might be offered.
Before filling out the application for any unsecured loan, a borrower must look out for the arrangement fees. If there are any, it could raise either the initial payment, loan premiums or final payments making it overall far more expensive. In the U.K., any arrangement fees are required to be included in the APR under the EU laws. This presents a clearer picture of what would be owed in total to the lending company.
Continuing the current lending compliant atmosphere in the country, the average credit card interest has seen a slight drop to 10.56 per cent according to recent figures. This does not include the promotional programmes run by credit card issuing companies for new customers. New customers are therefore, far better off by searching and comparing all the different promotional offers associated with new accounts.
Whichever loan option selected by the borrower, it is necessary to correctly analyse that it is the most appropriate one to their respective needs.
Secured loans forms the most amount of credit taken out by the British public. This type of loan, as the name suggests, is secured against an asset like a house or a car. If repayments are not made and the financial agreement falls through, it is possible for the lending company to extract its finances via the asset.
According to Financial Conduct Authority of the U.K., the onus is on the lender to make sure they have done all they can to check the ability of the borrower that they can make repayments on their finance for a mortgage. As with most secured loans, the mortgage interest rates are generally low and are stretched over a number of years (20+ years on average). The borrower would have to make certain that they are able to meet the stress test of a financer and have the means to makes consistent repayments.
Lenders would be primarily looking at affordability, then at the money management capabilities of the borrower. If a borrower shows maturity and foresight with regards to spending expenses, that would act as a definite plus in the eyes of the financial assessors.