While you might think applying to borrow money is as simple as being accepted or rejected, there are a number of different variables that will come into play when you get a decision from a lender.
Applying to borrow money isn’t always black and white. There are a variety of contributing factors that play into the final outcome to your application. Chief among these is the amount you are able to borrow, which can vary depending on your own situation.
Not only can these influences affect whether your loan will be approved, they also affect how much you could potentially borrow as lenders look to manage the risk.
Before you take the first steps in applying for a personal loan, it’s important to do your research so you know more about the factors that could impact your borrowing. Here’s what you need to know before you get started.
What can I borrow?
The amount of money you’ll be able to borrow when you apply for a loan or a credit card can be difficult to define. When it comes down to it, your current financial situation plays a large part in the final decision the lender makes on how much they are willing to lend you – and it might not always be the amount you applied for.
Following your application, lenders will consider your overall credit history to see if you have any previous financial circumstances that could negatively impact you, such as CCJs or bankruptcies.
Lenders will also look at the volume of debt you currently have, weighing up if another loan could potentially leave you with too many repayments to handle. Additionally, lenders also take note of your monthly income and your average outgoings, so they can assess the likelihood that you can afford to repay a new loan.
Lenders are obligated to ensure you are in a financially stable enough position to afford repayments, taking note of other outgoings such as mortgage payments and utility bills. This means that if you have a bad credit score, or already have large debts, you might only be approved if you accept a lower amount than you’ve applied for.
One of the biggest considerations lenders keep in mind is how much you can feasibly afford to repay on a regular basis, but this is something you should also be looking into yourself to ensure the amount of money you’re asking for is within your means.
Think about what you’re already paying for month on month, including:
Mortgage or rent payments. Probably the largest part of your outgoings, and the most important.
Utility bills. Including gas and electric, plus other payments like council tax, internet and mobile phone contracts.
Groceries. Consider how much your weekly shop costs you over the course of a month.
Having an idea of what is left over after you’ve paid off all your obligations will show you how much you can afford to pay back monthly. Work out if you can afford to make the monthly repayments comfortably and if not, it can be worth reassessing how much you’re looking to borrow.
Our useful ‘how much can I borrow’ Loan Calculator can help you build a better picture of your own situation. Simply indicate how much you would like to borrow, and how much time you would need to repay the loan to get an idea of how much you’d need to repay each month.
Improving your credit rating could have a positive impact on your chances of borrowing what you’ve asked for. The better your credit rating, the lower risk you are in the eyes of lenders, which means more favourable terms are far more likely.
There are a few ways to lift your credit rating, including registering to vote, making sure your details are all up to date with credit agencies and always making repayments on your existing borrowing on time.
Register to vote
If you’re not already, get on the electoral roll. It’s quick and easy to register, and helps lenders confirm your name and address, demonstrating stability in your situation too.
Get a credit card
Getting a credit card can really help give your credit rating a boost if you use it in a responsible way. Making small payments with a credit card and paying off your balance in whole each month is a great way to boost your score.
Get on top of your bills
Another step to take is improving the management of your household bills. Taking good care of your utility accounts will build your credit history in a positive light, and demonstrate to other companies that you are a responsible borrower they can trust.
Extra fees and charges
It’s not just the figure of the initial loan that you need to take into consideration when looking at how much you can afford to borrow. It’s equally important to remember that taking out a loan can include extra charges, including interest, arrangement fees and more. This is the case for most types of borrowing, including mortgages, and is how lenders make profit from the loans they give out.
Find out more about secured loans – with access to over 600 financial products that span the full loans market, we can help you identify the perfect loan for you.