If you have never applied for credit before the first-time you apply you might be surprised to find you are rejected. You have never had credit before so surely your credit rating must be good, right? Wrong, because you have never borrowed before you do not have a credit rating on file. You have to have credit to get a credit rating, but you cannot get approval for credit because you do not have a credit rating. So, what are your options for loans with no credit?
Being turned down for a loan can be frustrating. After all, you have not done anything wrong. You might be in a position to be able to afford a loan but lenders do not want to take a risk on you. Luckily, we work with lenders who will take your income into account, not your credit rating.
How a Credit Rating Works
When anyone applies to borrow money through a loan or credit card, the lender will check what is called a credit rating.
Your credit file holds all the information about your past borrowing history.
Your credit file typically holds information about:
- Credit you have had in the past;
- Any credit you have now;
- Your repayment history;
- Late repayments;
- Missed repayments;
If you have never borrowed before there will be no virtually no information on your credit file and the lender will have no idea how big a risk you are.
The information on your credit file comes from three main credit reference agencies. This means that your actual credit rating may differ between them.
Choices for Loans with No Credit
There are no specific loans for people who have never borrowed before but some loans may be easier to obtain approval for than others may.
If you need a loan but have no credit rating, you might want to consider the following types of loans:
- Short term loan/payday loan;
- Personal loan;
- Guarantor loan.
The type of loan you apply for is going to depend on the amount of money you wish to borrow and the term you want to repay it. This is the period of time you want to spread the loan over, which could be between 3 months to 36 months.
Short Term Loan – Small Sums of Money Repayable in 3 Months
The short-term loan or payday loan is taken out when money is needed for an emergency. This is usually to pay for an unexpected bill or something else that comes up.
This loan is generally paid back within a month or two. This can be a great way of getting your foot on the lending ladder. Borrowing a small sum of money and repaying it as soon as possible will give you a credit rating, and a positive one at that. Of course, you do need to ensure that the loan is affordable and you can repay it without issues. If you make a late payment or default on the loan (be unable to repay it) you will earn a bad credit rating and get off on the wrong footing.
A Personal Loan
You might be able to get approval for a personal loan from our lenders. This is a loan taken out with either a fixed APR or variable APR. The fixed APR is better as you know exactly how much the total loan is going to cost over the term you chose to repay.
You make monthly repayments on the loan until it is paid back, including the interest. With the personal loan, you may be able to borrow up to £5,000 and spread the cost over 36 months.
Another type of loan is the guarantor loan. As the name suggests you will need someone to be the guarantor for the loan. This might be a family member or a friend. Many younger people who are taking out first-time loans go for the guarantor loan with one of their parents acting as the guarantor.
The guarantor works by both you and the guarantor signing up for the loan. You make the monthly repayments of the loan as normal and providing you pay off the loan, all is well. However, if you default on the loan (find you cannot repay it) the person who stood as the guarantor will be required to repay the loan.
You might want to think twice before going for a guarantor loan and asking friends to stand in for you. Bear in mind that the person would be subject to the same criteria as you when you apply for the loan, so they must have a regular income. Their credit rating will also be checked so it would be no good choosing a friend who has never borrowed before and who has no credit rating.
Eligibility for a Loan
When applying for any loan, whether you have a bad credit rating, good one or no credit rating, you will have to be eligible.
The criteria are not strict but you should have a regular income, live in the UK, have a bank account with a debit card attached and be able to set up a direct debit.
If you have no credit rating, you might feel as though you are on a merry-go-round as no one will give you a chance, you go round in circles.
Here at Bonsai Finance, we have access to numerous lenders all of whom are prepared to take the circumstances of the individual into account. If you have a regular income, the lender will focus more on this than the fact you do not have a credit file. We can match you with a lender offering competitive rates for loans with no credit. Find your loan with our help.