Is it difficult to get a loan? Do you need to prepare an in-depth case to show lenders why you’re a good risk? What do lenders actually need to know?
If you’ve never applied for finance, or it’s been some while since the last time you did, it’s a completely understandable question – how difficult is it to get a loan?
Lots of people get nervous about applying for finance so here’s CashLady’s guide to how tough it is to get seven different types of loan.
A mortgage is the most difficult type of loan to get. Mortgages typically last for 30-35 years and are around 85-95% of a house’s value. Given that the average UK house price is nearly a quarter of a million pounds, these are big loans. As you’d imagine, your credit rating has to be top-notch.
Mortgages can take three months from application to firm decision. They involve filling in a lot of forms, handing over a lot of paperwork, and lenders will check everything about you, particularly if you are self-employed.
Every lender has different types of people they like to lend money to and different types of property they’ll provide funding for. For example, lots of lenders won’t give out mortgages on new build properties and some won’t give out finance if it’s a flat and it’s higher than the fifth floor.
If you need a mortgage, it can be better to go through a broker as there are hundreds of different lenders offering thousands of different mortgages. Brokers cut through all that and match you with the most suitable lending products.
Bank or building society loan
Your credit rating also needs to be squeaky clean if you want to borrow money from a high street lender like a bank or a building society. If you have a current account with a particular bank or building society, that’s a good start because they can see how you conduct your finances with them.
Interest rates are generally very low on these types of loans and they’re stretched out over 3 to 5 years. Banks and building societies don’t make that much profit from these types of loans so they’re incredibly careful about who they decide to lend money to.
If you only want a small loan to tide you over, this might be difficult as banks and building societies want to lend bigger sums of money – generally £3,000 or more.
Decisions can be instant with a bank or building society although many will take 2-3 days to come back to you with an answer.
With a crowdfunded loan, your credit history has also got to be strong. They like to make the same types of loans to the same types of people that banks do but at a higher rate.
Why do crowdfunded loans cost more a lot of the time? The money for your loan comes from ordinary members of the public. That means that there’s two lots of profit you’ll be paying – one to the platform (like Zopa) and the other to the member of the public.
Crowdfunded loans generally give you an answer within 2-3 days. Be prepared though as some will want to see bank statements, pay slips, and so on before they make a final decision.
Comparison site loan
We’ve all seen them – comparethemarket, Confused, GoCompare. They’re all great sites offering everything from loans to credit cards to utilities to insurance.
When you search for a loan, you’ll get page after page of different offers. You’ll see the name of the lender, the monthly repayments, the interest rate, and so on. You really do see the whole of the market.
The problem is that the information they give back is not tailored to you – it’s just a list of results. They’re not brokers – they’re introducers.
Brokers know the types of people that individual lenders want to give finance to and will approach these lenders on your behalf. Introducers simply gather information – there’s no way of knowing really if any of the companies you see listed on a comparison site are actually interested in lending you money at all.
You could find yourself making 3 or 4 applications in a row to see who will offer you money. Remember, too many credit searches in a short space of time make companies less likely to want to lend to you. Depending on how you use a comparison site, you could actually make it harder for you to find the money you want.
Guarantor loans are generally for people with less-than-perfect credit histories. The idea behind them is that they will lend you money but if you default, they will chase your guarantor for the money instead.
Guarantor loans are generally much easier to get than high-street bank and building society loans. Beware however because they are expensive. You’ll pay a very high-interest rate over 3-5 years – around 49.9% in many cases. That means if you borrow £4,000 over 5 years at that rate, you would end up paying back £9,486.
Absolutely no account is taken of the creditworthiness of your guarantor. Your guarantor could be Richard Branson or Alan Sugar but that doesn’t mean you’ll pay a lower interest rate.
Log-book loans are secured on your car. In other words, if you don’t keep up the repayments, you lose your vehicle.
Log-book loan companies have an open-minded and flexible approach to their borrowers – they are, in many cases, very happy to consider people with less-than-ideal credit histories.
Log-book loans can take up to a week to organise. Many lenders will want to make a personal appointment with you so they can take away copies of your logbook, tax, MOT, insurance documents, photo ID, a utility bill from the last 3 months, last 2 months’ banks statements and last 2 months’ payslips (or invoices if you’re self-employed). Log-book loans aren’t a quick way to money.
Payday loan and short-term credit companies, just like log-book loan companies, are very flexible about the credit histories of the people they’ll lend money to.
Pay-out of your loan is normally within an hour of approval direct to your account. In most cases, your funder does not need to see any documentation (although sometimes they do and may need to ask additional questions that weren’t on your application form).
You can apply for a loan quickly and easily either direct to the lenders or via a matching broker service like CashLady who finds the lenders most likely to say yes.
It depends on how much you want and who you ask. It also depends on how good or bad is your credit score. Despite the common misunderstanding, the completion of a loan application does not guarantee that you will get a loan.
Please make sure that you only borrow exactly what you need and that you can afford the monthly repayments associated with your finance facility.