Lenders: The Other Side of Borrowing

During the past few years, the British government has passed a number of legislations in order to make it easier for lender to assess the financial status of a borrower. However, these legislations were not primarily meant to make the job of lenders easier, but to improve the process by which they are able to make the right decision when handling a loan application. This streamlining of the lending process has provided financing companies with the necessary tools required to make the right decision while being fully informed of the application details.

As a result, a decrease in the application process time has been observed by a lending market information company based in London. This has also encouraged more people to apply for a rising amount of loans in the country. The Citizen’s Advice Bureaux has reported a steep rise in credit being sought for a wider range of purchases in the last five years. This includes the majority of financial sectors which are responsible for the continued growth of the GDP. These sectors are domestic spending, real estate and small and medium businesses. The growth in these sectors are the chief reason the U.K. is seeing an economic resurgence in recent years. This article will examine the lending side of loan application and what a financer is looking for to grant it an approval.

Credit Ratings for Personal Loans

Creditors have to assess the financial situation of an applicant to decide if their application possess the weight to be granted an approval. The credit rating of a person is a combination of financial and social situations including the history of payments made by the applicant. A credit score can be improved upon by taking certain steps as highlighted by the Money Advice Service (MAS) of the U.K.

If a borrower expects their credit score to be good simply because they have never taken out a loan, they could be facing an unwelcome surprise. A credit score does not exist without taking out credit. As arbitrary as this might sound, explains MAS, taking out loans improves the appearance of a borrower as it establishes their presence in the credit market. Although, of course this depends upon regular repayments of this loan.

Other factors that are contributory to improving a credit score is whether or not an applicant is signed up to the electoral register, length or residency to one address and number of current loans. The importance of knowing how long a potential borrower has lived at an address is indicative of their financial stability and their standing in the community. An applicant that has moved around from address to address would raise red flags for a lender as it would give an impression that the borrower does not have the financial stability to maintain residence at one property.

The credit rating would determine how much the lender considers an applicant a risk for financing. This would be reflected in the outcome of the application, and upon the interest rate, if it is approved.

Another important aspect of lending from various financers is that each application leaves a trail on the borrower’s credit report. A lender would see this as an act of financial desperation and would likely deem the applicant a risk of payment default.


Lenders use a number of tools and algorithms to analyse the application of a mortgage. As this type of lending spans over decades and would require a fairly large sum of money to be invested, a lender has to examine several financial indicators of a borrower.

The first and foremost aspect that is examined is the total income of the applicant. If a joint application is being made, the income of both applicants is figured in the assessment. This would paint a primary picture of affordability of the loan. After figuring in the incomings of an application, the lender would calculate all the outgoing due that would have to be paid from the sum of incomes. This would include council tax, bills, loans, credit cards and any other dues that have a claim in that sum.

The creditor would also perform a stress test on the finances to see if it has a reasonable chance to continue making mortgage payments. This stress test would run simulated financial difficulties to ascertain how well and applicant can manage their dues. A sudden increase in the mortgage interest rate, a sickness of the primary income earner or any other emergency that requires a diversion of fund would be factored in the stress test.

Other factors that a lender might look at could be novel to different companies offering a loan. For example, the number of children that an applicant cares for is also a major source of outgoings from the income. MAS has calculated that to raise a child from birth till the age of 21 years old would cost a parent an average of £31.23 per day.

How are the British Spending Their Loans

As the short- term economic situation continues to improve in the country, banks and other financial intuitions are feeling more confident in lending to borrowers. This trend has been spurred on by the government encouraging lenders to improve their loan approval criteria. In a 2016 data publication by the Bank of England, lending has been on the rise for the past several years, and has now reached an all- time high. This has further increased during the past couple of years due to the advent of contactless payments. In the U.K., debit cards have always been used for regular expenditure, however, with the widespread launch of contactless credit cards in 2014, their use has gained an increasing share of the payment methods for everyday spending. This can be further explained by user data published by the UK Card Payment Association showing that nearly 10 per cent of the number of all contactless transactions in the country during the year of 2016 involved the use of contactless credit cards. This was a steady increase from the 6 per cent of all contactless payments made in the year of 2014.

This is just one indication of the public’s increasing willingness to use loans as a means to pay for expenses that they wouldn’t have in the past. Combined with improved credit approval systems implemented by financial institutions at the behest of the government, it is not uncommon to see more people being approved for loans who are able to repay their dues.

Credit card payments might be the most common type of payment method in the country, however, as the economy moves further away from the recession, more types of credit lines are being offered for an increasing variation of spending. These spendings are used to pay for everyday expenses, fill in financial gaps in small businesses, entertainment and even mortgage payments.

For Driving

According to an online lending company based in the U.K. majority of their medium- term loans were approved for borrowers to spend on attaining their car licences and pay for driving lessons. However, the company has noted that the average amount that was lent was not enough to meet all the expenses that are associated to put a new driver on the road. An analyst has broken down the total amount that an average customer borrows in order to be mobile in their own car. This includes taking out finance to pay for the insurance, finance for a car and even paying for the car tax in instalments (however, this is dealt by the DVLA).

Data collected from the Money Advice Service (MAS) of the U.K., about 26 per cent of all short- term loans were taken out for paying for car related expenses.

Home Improvements

The Lloyds Lending Report of 2016 showed that nearly 20 per cent of mid- term loans provided by the company were approved in order to make either home improvements or repairs. This number is mirrored by the data provided by the Bank of England showing about 18 per cent of unsecured loans were approved during the year of 2016 for the same home related purposes. This number also includes nearly nine per cent of home boiler repairs and replacement related loans.

Emergency Spendings

The MAS has stated that 11 per cent of credit taken out by borrowers during 2016 has been due to the rise of emergency situations. This percentage has included both short- term and long- term loans that had been approved during this period. This lending was not common only amongst the Britons earning lower that the median annual wage of £25,000, as shown by MAS. About 57 per cent of people who had used a particular shot- term loan company had annual earnings in the bracket of £25,000 to £50,000.

Credit Card Spending

Gross lending on credit cards in the U.K. has increased by about 5 per cent since reported a financial advisory company. Although, the number of credit accounts have remained mostly constant throughout the previous decade, the actual cards in circulation have been steadily increasing during the past three years. This is primarily due to lower credit card interest rates and improved confidence in consumer spending. As a result, purchasing via credit cards is becoming more common by the year, especially in light of improved convenience provided by the launch of contactless credit cards in the country.

Entertainment and Luxuries

The improved financial security in the country has proven to be fertile ground for consumers to increase their taste for luxuries. This includes taking out personal loans for food and drink, experiences and goods like newer appliances and devices. Although most of these expenses are purchased using a revolving unsecured credit card, some more exuberant experiences like long holidays are paid using short- term and even medium term loans.

Debunking the Controversies Surrounding Payday Loans

During the last couples of years, the popularity of payday loans has increased tremendously, yet this increase in popularity has also brought along a wide variety of controversies, surrounding the market.

For those who do not know, payday loans represent a type of loan which is often used by people to get access to emergency funds, whenever they face a financial difficulty. The concept behind it is to give customers access to a few hundred dollars, before they get their next pay check. Based on this aspect, eligibility depends on being currently employed with either a part-time or fulltime job, as long as it is stable. Therefore, most payday loan agency will not conduct a credit check before giving you access to the loan. Other eligibility conditions include being at least 18 years old, and of course, being legally able to sign a binding contract.

Not only this, but there are numerous other benefits surrounding payday loans, such as the fact that people can learn to better budget by getting access to a payday loan. Not only this, but the funds are also transferred fast, which means that you can get access to your funds within a couple of hours, which is great news from all the points of view. Not only this, but the period of time that it takes to be accepted ranges from a few minutes, to a couple of hours at most. There is also some flexibility surrounding payday loans, which means that clients are allowed to negotiate the terms of the contract from time to time, with the agency, which is also great news.

By this moment, you may be wondering what the controversies surrounding payday loans are, and which are true. Without further ado, here are the main controversies surrounding the payday loans market, and why they are false:

1. Payday loan agencies charge insanely high interest rates

It is worth pointing out that the interest rates are usually a bit higher when compared to personal loans that you can get from banks. This is mostly due to the fact that no credit check is required, the delivery of the funds only takes a few hours, the documents that you need to provide are few, and the fact that the sums being offered are generally low, and are bound to be paid back within a couple of days or weeks, which is a practice that most banks do not offer, as they’d be losing money in the long run. Indeed, the rates are a bit higher, but they aren’t insanely high. In fact, anyone scoring a payday loan should be able to pay the funds back, alongside with the interest with ease, regardless of the size of their pay check, which is great.

2. Payday loan agencies are the modern-day loan sharks

Competitors on the market often say that payday loan agencies are the modern day loan sharks. Nothing more false. Agencies do not use violent practices in order to pursue clients to give the money and the interest fees back. Based on this, if there is no will from the client to reimburse the funds, then most agencies will simply initiate a civil lawsuit and get things over it. There are no practices such as violence, blackmail, or anything else of the matter, thus why this myth is also false from all the points of view.

3. Taking a payday loan puts you on the road of living pay check by pay check

Just like the other myths outlined above, this one is also false, considering the fact that payday loans actually teach people to better manage their funds. Not only this, but most agencies will advise clients to not spend all of their funds too fast, and come back from more. There is a chance of entering a vicious cycle of living pay check by pay check, but the chances of this happening to a sane person that only needed a payday loan in order to deal with an emergency are practically non-existent. There are of course those who spend their money way too fast, and attempt to get loans on a monthly basis, yet the percentage of the clients who actually do this is extremely low. After all, agencies will not force anyone to come back for another loan. It all depends on the psychology of the customers, and their budgetary choices.

Based on everything that has been outlined so far, we hope that we have managed to carefully debunk most of the myths surrounding payday loans. With this in mind, whenever you face a financial emergency, rather than borrowing money from friends and family and risking your relationship, taking a payday loan may be a lot wiser, from numerous points of view, therefore, don’t be afraid!

Personal vs. Vehicle Breakdown Cover: Making the Right Choice

There is nothing worse than finding yourself stuck in the middle of nowhere with a broken down vehicle. When you are in this situation, you will definitely want to have breakdown cover. There are different types of cover to choose from, and you will need to know what your options are. The more time you spend reviewing these options, the easier it will be to select the right one to meet your needs completely.

Do I Really Need Breakdown Cover?

A lot of people wonder if they actually need breakdown cover. The fact is that a vast majority of drivers find themselves in need of roadside assistance at some point. In fact, it is very likely that your car will break down while you are driving it at least a few times in your life. Some people need breakdown cover more than others, people who rely on it for work such as van drivers for example, but it’s definitely something that you should think about getting no matter what. If you drive a lot or have an older car, this type of cover can certainly help you out.

Vehicle Breakdown Cover

Vehicle breakdown cover will provide you with roadside assistance and other services for one specific vehicle. You will only be able to take advantage of these services when you are driving the vehicle that is associated with your policy. If you only drive one vehicle, this is probably the way to go. If you opt for a national recovery policy, you can get your vehicle towed to anywhere in the UK if it cannot be fixed on the roadside by the mechanic that is sent.

Personal Breakdown Cover

Personal breakdown cover will allow you to utilize roadside assistance services no matter what vehicle you are driving. This option is significantly more expensive than vehicle breakdown cover, but it can be a good idea for those who drive lots of different vehicles. You won’t have to worry about not being able to get the help you need just because you aren’t driving your primary vehicle.

Multi-Vehicle Policies

Sometimes it makes more sense to get a multi-vehicle breakdown cover policy. This is when you get cover for multiple specific vehicles. Those who have a family and numerous vehicles should definitely think about this option carefully. When you choose this type of policy, you will ensure that every member of your family has access to the roadside assistance services they need at any time. This is often the cheaper way to go if you drive multiple vehicles or have a family.

Joint Cover

Joint breakdown cover applies to two particular people, and it’s a great option for couples who use more than just one vehicle. Both you and your partner get the exact same level of cover. If you have selected a more advanced level of cover like onward travel, both of you will be able to utilize it as needed. This can be an excellent way to save money, so you should at least keep it in mind before making a decision.

Should I Get European Breakdown Cover?

European breakdown cover is a good choice for anyone who tends to venture outside of the UK from time to time. The more frequently you make these trips in your own vehicle, the more useful this cover is going to be. The last thing you want is to find yourself stranded in a place you aren’t familiar with because of a mechanical failure. Lots of people in the UK have this type of breakdown cover because it makes so much sense. You can breakdown cover for a one-time European trip, and it won’t even cost that much.


There are some breakdown cover extras that you can choose to get with your policy, though it will mean paying more. A lot of providers will allow you to opt for car hire and accommodations when your vehicle breaks down. This means that if you are travelling far from home when you break down, you are covered for a hotel stay overnight. You could also get a car hire for a day or two until your vehicle is fixed. This can make dealing with a breakdown much less stressful and inconvenient overall.

Which Type of Breakdown Cover Should I choose?

When you are trying to decide on a certain breakdown cover option, it is important to consider your particular situation. If you want to have cover no matter what vehicle you are driving, a personal breakdown cover policy is probably best. Vehicle breakdown cover is ideal for those who have just one car that they drive on a regular basis. Anyone with a family and multiple cars should try to get a family or multi-vehicle policy to save as much money as possible. It is important that you examine these options before settling on one in particular.