To be eligible for a loan you will need to:
- Be over 18 years old
- Be in permanent employment, receiving a pension or disability benefit/living allowance
- Have a bank account with a valid debit card
- Meet the criteria set by the lender and a credit affordability assessment
Charges and fees
Some lenders may charge up-front fees when you take out a loan with them and these charges should be factored into the cost of the loan.
Late or missed repayments will negatively impact your credit file and will remain visible for 6 years. Apart from lowering your credit score, the lender may also apply additional charges or penalties to the loan. These will usually be added to the loan and, as with any other added fees, will attract interest charges over and above the amount of the penalty itself. High-cost short-term loan repayments, charges and additional accrued interest is capped at double the amount of credit borrowed. Please check your lender's policies for more information.
Credit Ratings - How Do They Affect Me?
When a credit agency assigns a rating to someone, they will take into account a range of information, including past credit history. The final rating assigns the person a certain number that a creditor can then use to determine their risk of defaulting. How a creditor interprets those numbers, however, is up to them. They are not required to accept or deny a loan application based on credit ratings alone.
It's important not to reduce the process of applying for a loan to good credit and bad credit. A creditor can take into account a range of factors - while one direct lender might reject a person for having less-than-perfect credit, another creditor might accept their loan application. It all depends on how far varying creditors are willing to accept different levels of risk. However, people who have less favourable credit ratings tend to pay more for credit. For example, interest rates for people with lower credit scores may be higher than those with higher credit scores.
My Credit Score
Although taking out a loan is one way you may be able to improve poor credit, you have to be careful. Each loan application can be marked as an enquiry in your credit history; too many enquiries can indicate a need for funds or that you are taking on debts you cannot repay.
The initial application process is likely to lower your credit score at first and it will only improve once you have been making repayments on the loan for several months, being able to demonstrate an ability to afford and maintain the regular repayments is key to building your score. Taking out a payday loan is likely to have a detrimental effect on your credit score, even if it is repaid straight away (many mainstream mortgage lenders will now automatically decline a loan application where the borrower has had a payday loan!). Failing to meet payments will negatively impact your credit score and set you back even further. Only take out a loan if you know you will be able to pay back the complete amount during your contractual repayment period.
Having a higher credit score may also give you a better chance for lower interest rates and a higher acceptance rate on financial applications.
How APR works is best explained with an example.
If you borrow £1000.00 on a credit card with a 12% APR, over the course of a year it will cost you £120 (if you pay nothing back).
APR is typically added to a debt on a monthly basis, to find a monthly interest rate simply divide the APR by 12. So if the APR is 12% the monthly rate is 1% and if you owe £1000 you will be charged £10 interest each month.
It is worth noting that the longer the period over which you spread your repayments, the lower the monthly cost but the higher the overall interest paid.
What is representative APR?
You might see the phrase 'representative APR' used on broker and lending sites. This simply means it's the rate that most customers (at least 51%) will be offered, although not everybody will get exactly the same rate. You can use the representative APR as a general guide to how competitive a lender is.
The lower the APR of your loan, the less you're paying to borrow.
Your credit agreement will have the total repayable amount clearly communicated. This can be used in conjunction with the APR to make an informed decision about whether the loan is suitable for your needs.
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What do I do if I have changed my mind?
You can withdraw from your agreement within 14 days of you signing the loan agreement by contacting the lender directly by email or telephone. If you withdraw from the agreement, you will be required to repay to the lender the credit, and any accrued interest from the date the credit was provided to the date of repaying it, without delay and in any event within 30 days of the day after the day that you gave notice of your withdrawal. If you change your mind outside of the 14 day cooling off period, please contact your lender to find out what options are available to you.