Why can’t you get that low rate loan?

Sometimes it seems difficult to reconcile the loan advertisement figures with the figures you’re actually being quoted. Whatever happened to that low rate loan?

Loan rates

It’s not unusual to see a headline interest rate for a loan and alongside it a little asterisk.

Somewhere down on the small print it will have the notes that relate to the asterisk and you may find that they say, to all intents and purposes, that the quoted rate is only available in certain situations and is based on the ‘typical’ customer.

If your particular circumstances don’t meet that type of situation, then you may end up paying more than the advertised rate.

Conditions

Those conditions may be varied and lower rate loans may only apply to:

• secured loans where your loan is being guaranteed by one of your assets – say for example your property (in practice, it may be difficult to obtain an unsecured loan unless you have an excellent credit history and they may prove to be more expensive);
• loans above a certain value;
• loans which are linked to having an existing account or opening one;
• etc.

This isn’t a comprehensive list and there may be a number of reasons why that low rate loan advertisement may not apply in your case.

Secured versus unsecured loans

As touched on above, lenders set their prices based on several factors, one of which is their perceived risk.

A secured loan (or one underwritten by a guarantor) is lower risk for the lenders and you may, therefore, benefit from a reduced price.

Undertaking to secure your loan may be interpreted as a sign of your confidence that you’re going to pay in back in a reliable and orderly fashion – and that’s what many lenders like to see.

Of course, before securing any loan on your home itself, you should be absolutely certain that you can afford it and will be able to repay it back on the basis you commit to as part of the loan agreement.

If you do not, you may risk losing your home or the asset you used to secure the loan.

Do the maths

So, don’t be too swayed or frustrated by those low rate loan offers.  Look around, think about your options and above all, do your sums.

Clean Up Your Credit Rating

When applying for a mortgage, you’ll have to become intimately familiar with the contents of your credit report. If it’s not up to date, it can be a real headache to try and get things sorted, and may stop you from getting the mortgage you want.

Here are seven tips to help you clean up your credit rating before you apply for a big loan:

1. Get your file.
First and foremost, you need to know what your credit rating says before you can try to improve it. You have a legal right to get a copy of your report from the three big bureaus (Experian, Call Credit and Equifax), so get in touch and make sure you’re well-informed about how you stand – it costs around £2, so it’s not a big outlay. Remember that each of the major rating companies uses a different system, so you won’t end up with just one universal score.

2. Make sure your details are correct.
Once you’ve got your file, go through it and make sure everything is up to date. This stops you being negatively affected (in case of an error not in your favour) or accused of fraud (if you don’t declare a false piece of information that would improve your credit rating).

3. Know what is and isn’t included.
Generally speaking, your credit profile is based on how well you’ve paid off loans you’ve had in the past, the amount and type of credit you currently have, and whether or not you’ve applied for credit at other institutions that are still pending. It’s very rare for your credit score to be affected by your age, race, gender, how long you’ve spent at your current job, your current income, your level of education, your marital status, geographic location, how long you’ve lived at your current address, and whether you own or rent the property you currently call home. That’s not to say that lending companies won’t look at these separately, of course, but the details that actually make up your credit report should be a top priority.

4. Make sure you’re on the electoral roll.
This is how credit reference agencies get your address. If you aren’t on the roll, this can cause a great deal of unnecessary fuss, which could slow your application down considerably.

5. Close any credit accounts you don’t use.
You credit rating is based partly on the amount of credit you have available, not the amount of credit you’ve actually used. If you have a credit card with a maximum balance of £2,000, it doesn’t matter if you’ve only used £50 of that credit – it counts as £2,000 worth of credit. Pay off any accounts you don’t use before you apply for a mortgage, and your credit report will look a lot cleaner.

6. Dissociate yourself from bad influences.
If a relative of yours has a bad credit rating, this can occasionally impact on you. If you have no legitimate financial connection to them (for example, parents to a grown child), you can ask to be dissociated from them. This can have a positive knock-on effect.

7. Pay bills on time.
This is one to make sure you’ve got sorted a while before you apply. When moving house, debts can sometimes mount up – but it’s important that you keep on top of them. Just one missed bill can have a negative effect on your credit report and, while there’s not a lot you can do if it’s already passed, but it’s one to watch out for. The same goes for making sure you don’t get an unauthorised overdraft, or anything else that might incur bank fees.