Lending in the U.K. has increased significantly and steadily for the past few years. The government has also streamlines several legislatures with regards to providing loans to customers. In turn, an increasingly higher number of people are borrowing to spend on expenses like entertainment and food stuffs. Apart from private loans, businesses have also ramped up their borrowing from a number of lending sources in order to not only start or run their enterprises, but to expand. According to a Bank of England report, this increase in spending and lending has proven to be a shot in the arm for the national economy. However, even though lending is currently at an all- time high, there are more efficient controls in place to ensure the right people are approved for loans. This includes borrowers who are capable and willing to repay what they lent. Although occasionally, it becomes hard to take out a loan in the first place due to a borrower’s poor financial history, irrespective of how well they might be doing currently.
This does not spell the end of the line for borrowers in their search for a loan as there are certain pathways that can be availed in order to make sure that they have done everything possible to prepare for their application.
Enhancing the Strength of a Loan Application
By providing all the relevant information along with evidence, a loan application process would be fairly straight forward. Conversely, leaving out sections of the financial past, omitting obligations or providing false answers to the queries related to the loan could mean the application is rejected. When a credit application is rejected, it would show up on the credit history of the borrower, and could act as a deterrence for future potential lenders.
Another anomaly that is usually overlooked is the interaction between the borrower and their financial advisor for the application. All loan applications are processed by computer algorithms, however, sometimes these prove to be inflexible and might reject an application based on the paperwork. In such cases, communicating why the borrower might feel like that was an unfair decision could clear the air between the advisor and them, resulting in an application approval.
Ensuring that the Borrower’s Finances are in Order
When taking out a loan via Emu Payday Loans, the bank would predict the risk assessment for lending to the owner. By maintaining all the business records and finances, it would help the bank understand the risk in approving the loan.
The importance of proper book keeping is often overlooked, especially in small businesses. This has a detrimental effect when applying for banks loans as the bank would need to know if it’s safe to provide the borrower with their money.
This also applies for personal loans as maintaining a record of outgoings and incomings would allow the bank to make the appropriate calculations necessary in order to determine whether the borrower would be able to maintain their premium payments.
Keep Business Finances Separate from Personal Finances
As the owner of a small business, it might be hard to keep the finances separated, especially during the beginning of operating the trade. Additionally, lenders would assess both the owner’s and the businesses’ economic performance to gauge the loan application. This is not to cement the notion that both the business and the owner’s personal finances are one entity, but to establish a relevant link between them.
A financial charity company explains that since a small business would depend upon the finances directly available to the owner, it is also possible that the owner might spend too much on the business and fall into a personal financial crunch. To seek economic salvation, the owner might then try to take out a loan to stabilise both financial aspects. This would cause uncertainty for any lender as they wouldn’t want to approve a business loan for a small company which would instead be used for home bills and groceries. This would muddle the estimate the bank would have made from the business regarding repayments of the loan.
Increasing Credit Score
The credit score or credit rating is a record of how well a borrower has managed their loans in the past. It is also indicative of any payments made like bills and other dues. There are other factors that also influence the credit score of a person, and it affects the ability to take various types of loans. Therefore, it is essential to maintain a healthy credit score before applying for a loan as it would influence the interest rate if approved.
By signing onto the electoral register and using a credit-builder prepaid card, a borrower can greatly enhance their credit score, bringing down their interest rate on a loan and increasing the chance of the application approval.