| If you are thinking of applying for a loan, you should be | | | | and also what rate of interest to charge. As well as a |
| aware that there are many different loan products | | | | risk assessment, the lender will also factor other things |
| available and that not all people will be offered a loan | | | | into the equation, such as any security and the |
| at the rate it is advertised. There are two major types | | | | purpose of the loan. |
| of loan: secured and unsecured. The former is only | | | | For example, if you already have a large amount of |
| granted on the basis that something valuable is offered | | | | debt and are seeking a debt consolidation loan, |
| by the borrower as security for the loan, usually | | | | prospective lenders will assess your personal credit |
| property. An unsecured loan, on the other hand, is | | | | score, how much you can afford to pay each month, |
| given without the need for the borrower to agree to | | | | your past credit history and whether you own your |
| any security. | | | | home. If you suffer from a bad credit history, loans can |
| In the current climate of fierce competition and | | | | be difficult to get from high street banking institutions, |
| aggressive lending by the financial sector, secured and | | | | even if you are homeowner. But there are many |
| unsecured loans tend to be very competitive in terms | | | | specialist lenders who will offer bad credit loans for |
| of interest rates - both from high street and specialist | | | | debt consolidation and many other purposes based on |
| lenders. When advertising a loan, a financial institution | | | | a different set of criteria to the ones applied by high |
| will have a published headline rate (APR). According to | | | | street lenders. However, these loans can have |
| an OFT ruling, this rate must be offered to at least | | | | different interest rates to those available on the high |
| 66% of successful loan applicants. What this means in | | | | street. |
| a competitive market is that potential borrowers who | | | | Many critics claim that the people who can afford it |
| have the best credit profiles will go for the most | | | | least end up paying the most when it comes to |
| attractive headline rates, and will usually get them. | | | | borrowing. Financial companies counter that argument |
| However, applicants who do not score as highly as | | | | by saying that they are less likely to encounter difficult |
| the top 66% may be offered the same loan product | | | | repayments from those who are a good credit risk, |
| at a higher interest rate rather than be declined outright | | | | and therefore the differential is justified. |
| by the lender. The justification for the lender to charge | | | | But, if you are thinking of applying for a loan, get a loan |
| a higher interest rate is the level of risk involved. | | | | quote first. There can be a huge price differential |
| Each prospective borrower is individually assessed in | | | | between financial institutions so you shouldn't just |
| order to determine a level of risk; the lender can | | | | accept the first offer! |
| therefore determine whether to lend to an applicant | | | | |