One of the reasons why a lender would reject a loan application is the applicant’s credit rating. Credit rating refers to an estimate of a person’s ability to fulfil his financial obligations after considering his past dealings. A person that pays his debts on time could get a good credit rating while someone who delays his payments or defaults on loan could get a poor credit rating.
Several agencies in the UK keep a record of people’s credit score, and this information is accessible to borrowers and lenders. However, some lending institutions have their way of knowing when granting a loan to an applicant could be safe or risky. Other financing firms do not consider credit rating at all. However, a weak or good credit record can affect several aspects of the loan.
Not all borrowers get the same amount when they take a loan. A finance company that lends £100 – £5000 may extend an investment of only £100 for a first-time borrower with lousy credit while someone with good credit can get a loan of £1000 – £3000. One way of making sure that you can borrow a significant amount from a lending company is by improving your credit rating.
Annual Percentage Rate
A borrower’s credit rating would also affect the annual percentage rate or APR of the loan. If you have a low credit rating, you might have to pay a high-interest rate while those with high credit rating would pay low-interest rate.
Lenders consider people with a low credit rating as high-risk clients because of the possibility that they might not be able to pay their loan on time or they might not be able to settle their debt at all. A high-interest rate would allow lenders to get back a considerable portion of his investment in case a borrower would be a delinquent payer.
Terms of the Loan
The payment period for a short term loan can be from six months to 12 months. However, a lender might require a borrower to pay back his debt within a shorter time, such as within six months. They are giving borrowers with bad credit 12 months to pay back increases the possibility that he would miss or delay some payments, while lenders trust them to pay back their loan on time.
People with a high credit rating can quickly get a loan from several lending institutions and enjoy great deals. Repeat borrowers with a good record can borrow more than the amount of his first loan. However, if your credit record shows that you had a hard time fulfilling your financial obligations in the past, you can only get a loan from specialists such as lending companies that cater to clients with bad credit.
Before applying for a loan, review your credit rating first. If you have bad credit, look for lending companies that extend bad credit loans to make sure that you could get the cash that you badly need.