In the not so distant past, credit was flowing at fire-hose strength with seemingly anyone eligible to be approved for finance of one kind or another. Loan lenders were falling over themselves to extend credit to people of all circumstances and credit history, with a poor credit rating not necessarily being a hindrance to having an application accepted. These times seem very long ago now, with the global financial markets in turmoil and credit lines being frozen left, right and center.
The credit crunch has left most banks scrambling to rearrange their balance sheets, with lending either stopping altogether or being charged much more for in higher interest rates, and capital reserves being built up. Other banks, of course, are no longer with us having either gone bust or been subsumed by rivals.
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Given these circumstances, can people with poor credit ratings still expect to be able to get a loan?
If you don't own your home, either outright or via a mortgage, then you're going to struggle to have an application approved by any of the mainstream lenders unless you have a pristine credit record. Homeowners may have an easier ride, but this will depend on them having plenty of equity in their home - i.e. their home must be worth much more than any money they owe on it, such as a mortgage or secured loan. This is because the lender needs to be confident that even if property prices continue to fall, the house can still be sold at a price high enough to recoup the debt if the borrower defaults on the loan.
Specialist lenders do exist who will offer finance to people of less credit-worthy backgrounds, including people who rent their home and have had a checkered financial history when it comes to keeping a clean credit rating. The problem is, that many of these lenders charge extremely high rates, and are not willing to lend large amounts compared to the income of the borrower. Often, these lenders will require weekly collection of repayments in person, which may be off-putting to some, hinting as it does at the murky world of loan sharks even when the loans are nothing of the sort.
Other options include guarantor loans, where someone with a better credit rating vouches for the loan - this could be a parent or other relative, for example - but this is something of a niche product which isn't yet particularly widely available.
There are, however, signs that things are starting to improve as banking institutions come to terms with their losses and credit begins to flow more freely again. There's little prospect though of a return to the days of such easy credit as we saw just a couple of years ago, so people with poor credit ratings still might have to set their sites lower when looking for a loan, and pay more in interest than they ideally would like.
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