If you’re currently looking for a loan, there are some things about which you need to be aware. All guarantor loans UK providers submit applicants details to a number of checks. What checks they carry out depend on the type of loan and their method of approval. The brief answer is that most providers will use two broad metrics to determine eligibility:
- Credit history (past credit, how much you’ve borrowed and paid back, defaults etc)
- Present ability to pay (current income and outgoing with little concern about the past)
If you are the person applying for a loan, these checks are carried out for your record. In the case of a UK guarantor loan, naturally the checks are for the guarantor.
What is a credit check?
Credit checks are the single most important element when applying for any loan. Decisions are made solely on the results that Equifax, Experian and other agencies provide to lenders. It’s a guide for the lender’s on whether you or your guarantor should be accepted for a loan. However, it does not tell the provider to give you a loan or not give you a loan. They can take decisions independently if you have a high Trust Rating. We explain what this is later in the article.
What they are looking for is reassurance that you can pay back what you borrow. When confident, the lender is far more likely to trust you or give you more credit or a higher value loan with a good credit score.
Explaining the soft search
The agency starts by running something called a “soft search” on both your own and the guarantor’s record. Even if you’re taking out a loan with a guarantor, you are also subject to such credit checks. Soft searches are not full checks and will therefore not impact the full credit score in the way a thorough examination will. If refused and you choose another lender, they will not know that the check was carried out.
Like a full check, a soft search will determine whether you or the person willing to act as guarantor have good credit ratings. It provides a score in the form of a number; larger numbers are better scores. It is not a decision on whether you can have a loan; it does not come from the loan company but an independent organisation. It is simply a guide to whether you will be able to pay back a loan based on current income and past borrowing.
Explaining affordability checks
An affordability check is different from a credit check. It is far less concerned with the past credit record and more concerned with the applicant’s or guarantor’s current financial situation. They will want to know:
- The total value of your income including salary, investments such as dividends, including any loan repayment and savings value
- Financial commitments include rent and mortgage and other borrowings such as credit card debt and loans
They will then ask how much you want to borrow and consider how much you can afford to repay based on those financial commitments. Only then will they decide how much you should be permitted to borrow.
They may approve the full loan, or they may offer a reduced amount if the application is perceived as risky. In the case of a big purchase – for example a new car – you may be expected to increase the value of your deposit or find more money from elsewhere.
Ensuring approval for your guarantor loan
When applying for any loan, but especially for guarantor loans, UK providers require that the applicant and their guarantor fill out all the details such as age, address, how long they have lived there, and sometimes previous addresses. You will also be asked about your income and financial commitments.
It’s important to fill out this information honestly and to the best of your knowledge. Aside from being illegal, dishonesty about your income or outgoings could hold up your application and result in rejection. They make ask for further details if there is confusion, but this is usually to ensure that you are the person you say you are rather than to “catch you out” on the personal financial information you provided.
Apply for what you need, not the maximum amount. It’s tempting to do this but the more you apply for, the higher the risk. If your credit score or affordability check is delicate, it will only hinder and not help the application.
What is a trust rating?
Some providers use something called a trust rating. This is usually a guide used only by that provider, so it doesn’t have industry wide merit, just a reference for that company. It looks at how many loans you have taken out with them and whether they were repaid on time. In doing so, you indicate you are a trusted customer.
This can speed up the application process and even affect how much you are able to apply for, over and above the recommendations of the credit score. Due to past experience, the provider downgrades your risk rating. However, if you struggled to pay off a past loan, defaulted or were late paying, they may be less willing to take a risk even with a good credit or affordability rating.