What Determines if a Loan is Approved?

When applying for a loan, there’s always the anxious wait on whether you will be approved or not. If you are someone with a history of poor credit, you may expect the worst, whilst if you have excellent credit, you may feel more confident. Depending on the lender, you’ll already know they will have certain criteria as to if you are an eligible applicant or not. However, this only tells one part of the process, with your credit report also playing a crucial role in a lending decision, as well as your affordability. So, what is the loan approval process, and what determines if a loan is approved or not?

Here at Fast Loan UK, as a direct lender of short term loans, we take a human approach to the lending process, enabling us to help those with a poor credit history. However, not all lenders work the same way we do and may use automated lending decisions. Here’s what to consider when looking to apply for a loan that will determine if your application will be approved.

Your Credit Rating

Your current credit rating plays an important role in determining whether a lender can help you or not. It’s an overall indication of your creditworthiness and tells lenders whether you have a good or bad credit history. During pre-approval checks, your credit score will be seen, and some lenders may decline at this stage if the rating is too low for their eligibility criteria.

Your credit rating is provided by Credit Reference Agencies (CRAs) which include Experian, TransUnion, and Equifax. Each offers a different rating and may hold different information about you. Many lenders will use a combination of all three CRAs to get the clearest picture of your credit rating, whilst others may only use a preferred CRA. This is also alongside a lender’s internal credit rating which determines the minimum score they are willing to approve. Many high-street banks and lenders will have internal rating systems.

Your rating is ranked between very poor and excellent, with the higher the score the better. Those with excellent scores will find they may have more borrowing options available to them as well as preferable rates of interest and repayment terms. Someone with a low credit rating may have limited options and may struggle with being approved by banks and high street lenders for products such as a personal loan or mortgage. Your credit rating will be determined by many factors on your credit file, but actions such as missed or late repayments, inaccurate information, defaults, and CCJs will all impact and lower your score. Even if you have none of these, you may have a lower score simply because of a lack of credit history.

Information on Your Credit File

Your credit file is a wealth of information for lenders to use when assessing your suitability for a loan. Alongside your credit score, which gives an overall rating, your credit file is the details behind this score. During a soft check when being pre-approved, the full details of your credit report are not assessed, however they will be able to confirm your identity and some essential information. If you are pre-approved for a loan, the lender will then conduct a hard check which will access your credit file in more detail. This provides a full overview of your credit history and means lenders can carefully consider whether you’re an ideal applicant to lend to.

The information contained on your credit file is then compared with the information in your application. This ensures that the lender is assessing your creditworthiness and that the details you’ve provided are accurate. They may also require you to provide your proof of identity and proof of address to further confirm your details. The CRAs will contain the following information about you that lenders can see:

• Electoral roll – including your addresses where you are registered to vote
• Account information – details of your existing bank accounts, loans, and other borrowing, including your repayment history.
• Public records – any information about CCJs, defaults, bankruptcies, debt relief orders in your name.
• Financial associations – people who are financially linked to you such as joint account holders.
• Previous searches – a history of companies and organisations who have accessed your report in the last 12 months.
• Linked addresses – your full address history.

From accessing this information, lenders can understand your credit history and current creditworthiness. If there is any information on your credit file that is inaccurate or missing, the only way to find out is by accessing your credit report. Ideally, you will do this regularly to ensure that the details are correct, and if you find any inaccuracies, you can then contact the CRA to update or remove them. Checking your credit report can also help you understand the factors that are positive and negative for your credit score, so you can make improvements where necessary.

Your Affordability

Whilst your credit rating and report will provide your financial history, assessing your affordability ensures a lender can see your current income and outgoings. This is an important part of determining whether a loan will be approved or not as it will help lenders understand if you can afford the repayments and sustain them.

By providing details of your income sources and your essential outgoings, this will determine your disposable income. If a lender cannot determine you have enough disposable income to cover the repayments on a loan, they will need to decline. Responsible lending guidelines set out by the Financial Conduct Authority (FCA) require lenders to ensure that approving a loan will not cause someone to get into financial difficulties. Every lender will work differently, and some will focus more so on your affordability than your credit rating, enabling them to help those with a poor credit history if suitable.

What You Should Consider Before Applying

As lenders will check plenty of financial information related to you, it’s important to ensure that the loan you need is suitable for you. Can you afford the repayments comfortably? Will your circumstances change in the coming months that could make sustaining a loan difficult? Being in the best position to borrow will avoid getting into financial difficulties. Checking your credit score and your credit report will also show you how lenders will view your creditworthiness, and may provide tips on how to improve your score with a few changes.

Whether you need car repair loans to get you back on the road after a breakdown, or another form of emergency borrowing to cover an unexpected bill or expense, at Fast Loan UK, we focus on your ability to afford repayments. As we take a human approach to lending, we will run credit checks to see your credit history and score, but if you are someone with a poor credit history, we may still be able to help.

If we can determine you can afford the loan you need and sustain the repayments weekly or monthly, we could approve your loan. This makes us different from many lenders and their loan approval process as we do not use automated systems and we will assign a personal Customer Care Manager for every applicant.

If you need emergency funds due to a lack of savings or due to being in between paydays, you can click apply now to begin an application. We’ll quickly see if we can help you today.

For more information about your finances, including your credit score and credit file, please visit Money Helper.