An unsecured loan is a collateral-free method of borrowing from a lender. Unsecured loans are often referred to as tenant loans because they are available to people who aren't property owners. Tenant loans for people with bad credit are possible, but at a vastly high APR.
The tenant loan application process isn't a lottery. Lenders follow a stringent set of procedures to reach a decision. They underwrite this risk and either charge the advertised rate of APR, a slightly higher APR when some bad credit exists or decline the loan application completely for serious adverse credit.
Tips to Get a Tenant Loan Application Approved
- Credit report. Pay £2 and order a copy of a personal credit report. Check for any errors and get these corrected before making a loan application.
- Electoral register. Not being registered can result in a tenant loan being declined. Lenders like to know that a potential customer lives at the address on the application form.
- Close obsolete credit accounts. The fewer sources of credit, the less financially exposed a customer appears to a potential lender. Write to any lenders to request closure as cutting up a store card doesn't terminate a credit arrangement.
- Limit loan applications to lenders. The more searches performed the more likely it is that a loan application will be declined by a lender. Multiple loan applications cause concern that the customer is in a bad financial position. All searches stay on credit reports for 12 months.
- Permanent employment. If in a probationary period, wait for the position to become permanent before making a loan application. Tenant loans aren't secured so lenders are likely to refuse them when relative job security doesn't exist.
- Be honest about a personal credit rating. Applying to a high street lender for a low interest loan is likely to result in a decline if bad credit exists. High street lenders are only looking for prime credit customers. Loans for people with bad credit are available, but it will be necessary to go through an adverse credit broker.
If adverse credit or bad credit is a problem, identify a broker as they will be able to search the entire market to find loans for people with bad credit. The rate of APR will reflect the risk posed to the lender so think carefully before taking out additional finance.
Those who are interested in applying for an unsecured loan may also be interested in The pros and cons of Payday loans and Identifying ways to reduce credit card balances.
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