How Do Lenders Assess Loan Applications?

Flintstone1

It's nearly time to replace my car and I've been looking at loans but I'm wondering if anyone ever gets the rates advertised. How exactly do lenders decide what rate they offer?


Outgoings are:


Mortgage, monthly repayment is about 20% of my take-home pay.



Credit card, monthly repayment nominal.


Loans. None.


Other outgoings. Probably account for about another 50% of pay.


Credit rating. 'Excellent' or '999', dependant upon which site I ask.


No bad credit history,CCJs, convictions or skeletons in the closet such as bankruptcy etc. To my untrained eye my application looks about as good as it gets but somehow I never seem to qualify for the lowest rates (to be clear I've not actually submitted a 'full' application as I don't want to affect my credit rating until I'm ready to go ahead).


I have savings and ISAs that I could cash in but those are for a rainy day. Someone told me that my income is TOO high and that I should lower it on the application. Does anyone actually know how it works?

Willing2Learn

Ignore your 'credit score' as typical lenders neither see it nor use it.

A lender scores against their independent criteria and policies, using the data held in your credit file(s), added to the data you submit in your application, added to the data they may already hold on you as an existing or returning customer.

What exactly do you mean when you say "monthly repayment nominal" for your credit card. I believe that paying the statemented balance in full looks best to lenders when applying for credit.

Are you on the ER? Have you checked your three credit files for accuracy of recorded data?

Ignore the person who told you that your income is too high...

BoGoF

Of course people get the advertised rates.....in fact 51% of successful applicants must get that rate.

Ignore your ficticious credit rating/score......the credit reference agencies dont lend money and nobody else sees your score.

You say no bad credit history, however you seem light on credit history?

Flintstone1

Willing2Learn wrote: »

What exactly do you mean when you say "monthly repayment nominal" for your credit card. I believe that paying the statemented balance in full looks best to lenders when applying for credit.

Are you on the ER? Have you checked your three credit files for accuracy of recorded data?

I overpay the credit card each month by a factor of at least x5. Outstanding balance is about £2000 with a limit well above that. It's the last debt, apart from the mortgage, that I have and it'll be clear in a few months.


"ER", Electoral Roll? If so yes and been there four and a half decades. Tips appreciated on how to check my credit data (or I can online search). Thanks.

BoGoF wrote: »

You say no bad credit history, however you seem light on credit history?

I'm not sure how you would know that.

BoGoF

It was a question about your credit history.

One credit card is not a lot of history, what other recent credit have you had. BTW carrying a balance on a credit card is not a good idea unless you are on a promotional rate.

Willing2Learn

Flintstone1 wrote: »

Tips appreciated on how to check my credit data (or I can online search).

You can check your three credit files via the following three sites:
MSE Credit Club = Experian
Clearscore = Equifax
CreditKarma = TransUnion

Clive_Woody

Flintstone1 wrote: »

I overpay the credit card each month by a factor of at least x5. Outstanding balance is about £2000 with a limit well above that. It's the last debt, apart from the mortgage, that I have and it'll be clear in a few months.

By not clearing your credit card balance in full each month, it tells lenders that you do not have spare cash and therefore potentially could not afford loan repayments. This could be considered a significant risk and I suspect the APR you are offered may be higher than the representative rate advertised.

yksi

By overpay I assume you are paying at least 5x the minimum repayment.

Lenders are looking for people to be repaying their credit card in full every month. If you're not, it indicates you're struggling financially, which will affect the rates and deals you are offered.

YorkshireBoy

Flintstone1 wrote: »

It's nearly time to replace my car and I've been looking at loans


I have savings and ISAs that I could cash in but those are for a rainy day.

It's raining now then isn't it?

Outgoings are:


Mortgage, monthly repayment is about 20% of my take-home pay.



Credit card, monthly repayment nominal.


Loans. None.


Other outgoings. Probably account for about another 50% of pay.

So 30% of your take home pay goes towards paying the £2K credit card balance?

Assuming your credit card is not on a 0% promotion (it can't be otherwise you wouldn't be overpaying it) you seem to be happy incurring circa 20% interest and prepared to pay 3-5% loan interest rather than using savings which might be earning circa 1.5%? Like I said above, its raining now.

"ER", Electoral Roll? If so yes and been there four and a half decades.

You're 63 years of age? Maybe they perceive this as an additional risk, especially when coupled with a revolving balance on the credit card?

Flintstone1

I got that wrong, didn't I? Make that four decades as a voter.



No, it's not really raining. I have investmentss that I would cash in if (say) I lost my job or something, we're also thinking of moving home so those funds would be better put towards bricks and mortar than a vehicle. It suits me to leave those untouched for now.

So 30% of your take home pay goes towards paying the £2K credit card balance?

No.



Credit card. The balance is unusually high (for me) because it was a 0% transfer and I used it for a one-off purchase. Minimum payment per month is £80, I pay £600 per month so like I say that will be clear in 5-6 months.



Credit history. I have mobile phone contracts, paid-off loans etc so that shouldn't be an issue.

Willing2Learn wrote:

You can check your three credit files via the following three sites:
Experian
Equifax
TransUnion

Thanks for the links, those will be most useful. I've used Experian before but it'll be interesting to see what they all say.

BoGoF

Sorry but it is raining if you are paying 20% interest on a credit card balance. It's financial madness to not pay it off if you have the means and has been pointed out on a couple of occasions is not a good look to a lender. Just look at your statements and see how much money you are throwing away in interest.

How old are these paid off loans? A prospective lender wants to see recent history, not something 3-4 years old.