Expert loan views & facts

The credit crunch means that applying for a loan is tricky business compared to recent years. Potential losses after years of confident lending have meant that lenders have had to tighten their lending criteria, making loans harder to come by.

That’s not to say it’s impossible to get a loan – after all, lenders still want to gain business – but most lenders will no longer give out loans that they consider high-risk. With this in mind, it’s essential that you are in the best possible financial shape before applying for a loan – it could be the difference between being approved or being unnecessarily rejected.

You should only apply for a loan if you are sure you can afford it – especially in these uncertain times for the economy – but if you can, a loan can be a very helpful headstart for your finances.

Loans & keeping up appearances
An application for a loan is similar in many ways to a job application: your lender will want to see you are well presented, and that they can rely on you.

A loan application depends largely on the health of your credit report – so it’s essential that you keep your credit history in order to improve your chances of getting that loan.

Credit reference agencies constantly keep tabs on your credit activity, including any ongoing credit (credit cards, overdrafts, loans etc.), as well as your address according to the electoral roll. Any questionable points in your credit report could hinder applications for credit, since lenders don’t want to take a risk on you if you can’t prove your identity and financial activity.

For this reason, check your credit report and make sure it’s up to date. There are plenty of online resources that allow you to do this, usually for a small fee. Credit Reference Agencies have a tough job keeping everything 100% accurate, so you may find that your address history is inaccurate, or you have old debts still listed as unsettled. Correcting these could be vital to your application for credit.

Stay on top of your existing debts. You can’t go back and ‘correct’ your credit history if you have fallen behind on payments – and good behaviour with your current commitments greatly improves your chances of being approved for further credit. However, if you do have existing debts to repay, consider whether you will be able to afford a new loan.

Do not apply for too much credit, or too often. If the amount you want to borrow is unusually high, particularly compared to your income, lenders may become suspicious. Be realistic with how much you want to borrow, and make sure you can definitely afford to pay it back.

Likewise, too many applications for credit may suggest to lenders that you are not careful enough with your money. Only apply for credit if you have a genuine, important reason for doing so and you know you will be able to pay it back on time.

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You should never apply for a loan to pay other loans (unless you are grouping a number of debts together to simplify your finances – see debt consolidation loan). If you have debts that you are struggling to repay, it’s essential that you speak to an expert debt adviser. They will talk you through a range of debt solutions, such as debt management plans, IVAs etc., and help you decide which is best suited to your situation.