If you have followed my posts then you’ll know I’ve been thinking about becoming a home owner since last year. I started doing research and shared my learning journey in my become a homeowner post, like how to check your credit score and ways to save up money for your deposit.
Owning a home is still my big dream but I have also started to wonder about personal finances in general. This lead to me to question loans. I realised that apart from student loans and overdrafts, I had little experience with borrowing money and I had no idea how loans work or how much I can borrow.
Although I am making every step to save, I started to wonder what I would do if I was short for money. For example, what if I decide to move to a new rental property and need to borrow a deposit? I decided to learn more about loans to make sure I’m prepared, and I’ve listed it below, so that you, girl, can be ready, too.
It makes sense that how big your income is affects how much you can borrow, but how does this work when you apply for a loan?
For any lender, they are taking a risk when lending money. This means they carry out an assessment to make sure you can repay the amount you borrow. This looks at how much of your monthly earnings you spend on paying off debts and your outgoings, like rent and food costs, to calculate if you are a good candidate for a loan.
How Bad Credit Impacts Loans
As well as an assessment for how much you earn, a lot of lenders like to check your credit rating. They use your credit score to tell them about your history and it might be low if you’ve missed payments or not had any loans or credit cards before.
Even with a bad credit score, there are loans that can help. But if your score is low, you could be viewed as a higher risk, so these loans may be at a higher interest rate. However, if you pay it back on time, a loan could help to improve your score, which will be a good thing if like me, you want to own your home.
How Long it Takes
Lastly, now you know how lenders assess an application, how long will it take?
I discovered that even if I get stuck in a bad situation, there are lots of lenders online that can give me a decision very quickly. Some of them are instant and many take less than an hour. This means that if your car breaks or you need money quickly, there many options. This is always nice to know but look around to compare interest rates.