Whenever you apply for a loan, different factors are taken into consideration. Your credit score plays a big role in your lender loan rates is determining. if you’re eligible for your chosen loan. If your credit score is particularly low, you may not be able to get a loan everywhere.
However, there are bad credit loans that provide you with the best options based on your circumstances. Keep reading to find out other ways your loan rate is determined.
During a loan application, you’ll be asked if you’re currently in employment and what your average salary is. This is so the lender can check that you’re applying for a loan within your affordability. If you’re self-employed, you’ll need backdated records of your accounts to show your annual income.
Some lenders will ask for an accountant’s certificate as proof of your earnings too. Some lenders won’t offer them if you’re in temporary or part time employment, as it could mean you can’t guarantee the repayments. When checking your application, a lender is making sure that your annual income is well above what you’ll need to pay back, as they don’t want you to borrow more than you can afford and get further into debt.
Duration and Amount
Your loan rate is also determined by how long you wish to pay your it off for. The longer duration you choose to pay off your loan, the higher the interest rate applied. However, your monthly repayments will be a lot lower the more you spread the payments out. You may find that the more you borrow, the lower your interest rate is. This might make you want to borrow more. But in reality, you’re better off only requesting what you actually need.
If you have a low credit score, your likelihood of being approved for a regular loan is quite low. Even if you are accepted, you may be hit with a much higher interest rate. When you apply for a loan, lenders will often run checks on you to see your credit score. However, they don’t run a full check as if you have lots of these showing on your record, it can seem that you’re always needing finances from elsewhere and you might not be able to make your repayments.
A joint loan will have a different set of criteria, not limited to all of the above and more. If you have a near perfect credit score, but the other applicant doesn’t, you might get offered a worse loan rate than if you had applied on your own. A joint loan might allow you to borrow more but be aware that you could end up with a worse rate as both applicants’ circumstances are taken into account.
There are a few other small application musts too. For example, most lenders will require you to be over 18 years old, and some only allow over 21s to apply. Some banks that offer loans will also require that you have a least one service set up with them loan rates, such as a bank account or mortgage. If you’re thinking of applying for a loan, do your research and make sure to stay within your affordability.