Although the banks have promised to start lending again it appears that many lenders are still operating a tough approach to requests for loans, it can seem like an uphill task to get an application for finance authorized.
However, knowing the criteria that banks pay most attention to and how to make a request for credit look more attractive can improve the chances of getting approved.
Bank underwriters are cautious and when they assess applications for loans, they tend to view any kind of changes warily. It is therefore never a good idea to make sweeping lifestyle changes just before making a loan application.
Thinking of moving house? Whilst that in itself may not be sufficient to get an application refused, being a long-term resident in a dwelling will help to bump up the number of points on your credit file.
Likewise, if you are considering quitting your job or going self employed, opting to make the change just before a loan application is likely to be viewed dimly and will seriously hamper any chances of getting credit.
Underwriters like to see stability and a sturdy and unchanged financial record when considering loans. It is therefore essential to avoid trying to acquire too much credit within a short space of time, even if all the applications are approved, as this could act as an indicator that you are in financial difficulty and potentially overloading yourself with debt.
Even once a loan is agreed in principle from a bank, many will need to see documentary evidence of key facts, especially if they are not your usual banker.
If the bank who you have applied to holds the account where your paycheck gets credited and you managed your bills, you may be asked to provide less documentary evidence, as the bank already has knowledge of your finances.
For banks providing loans who have no prior knowledge of the applicant, it is usual to ask for a number of documents to verify the statements made on the application. The type of documents usually requested include items such as paychecks, bank statements and copies of utility bills.
Whilst it can be more convenient to stick with the bank that you hold your main account with, for the sake of providing a few extra documents, you could miss out on a much cheaper credit agreement.
It is therefore always worth checking the market to see whether any banks have incentives to attract new customers for credit. This is one instance where staying loyal really doesn't pay.
If the interest rates seem extortionate, some banks may be willing to negotiate if you are able to offer collateral, as banks far prefer some kind of security for a loan and this can unlock the door to cheaper repayments.
Along the same lines, if your credit is less than perfect, it may help you get cheaper repayments if you have a close family member who would be willing to act as a co-signature on the account.
However, loans taken out on this basis reflect on both parties' credit ratings, so it is essential that the co-signer understands the full implications before agreeing to help out.
To summarize, it is possible to get loans at a reasonable rate but to do so, an applicant must prove to the loans underwriter that they do not present an adverse risk and are unlikely to act in a volatile and unpredictable manner.
One good test to try out privately: if you were giving out loans from your own personal money and saw your application….would you agree to provide the cash? If the answer is no, then it's time to clean up your credit
This has been a guest post from Money Supermarket.