Self Employed Loans
If you are self employed, getting a loan can often be difficult with lenders wanting 3 years accounts or more.
To borrow money from a lender you have to prove that you are financially sound and will be able to keep up repayments. Being self employed or say working on a short term contract makes this harder for you to prove. A mainstream lender will want to see at least 3 years audited accounts as proof that your business has done well over that time. If it has, you should be able to borrow money from most lenders. Lenders feel they are taking less risk with full time employed people. As lenders look at it, if you are self employed you have to chase things like payments and invoices, you could be working on a short term contract, if so what will happen when that runs out, will you succeed in getting a new contract. They need to believe that you will financially be able to make payments throughout the term of the loan.
Even if you do have 3 years worth of accounts to show a loan provider, your accountant is likely to have minimised the amount you declared as income for tax purposes. It is ironic that having a good accountant can actually be your downfall in the loan market. By downplaying your profits it could turn out that when a lender looks at your accounts, their assessment of how much you can borrow is based on an income that doesn’t reflect your ability to pay.
There are more flexible lenders out there and you should not despair if you do not have accounts to show as proof of earnings, there is still another way you can get a loan, self certification could be your answer.
UK Loans – Tenant Loans for Non Homeowners
If you do not own your own property and are paying rent for the property you live in, you are known as a Tenant.
Whether you are a council tenant, housing association tenant or pay rent to a private landlord, you are known as the leasee’ of the property.
Because you do not own your own property, you will not be able to use it as security against a loan. The fact that you do not own your own property means that it cannot be repossessed should you not be able to keep up repayments. Not owning your own property means that you will not be able to obtain a secured loan, the loan that you can take out, is a ‘tenant loan’ – or ‘unsecured loan’.
Unfortunately because of the lack of security (your own property) lenders do tend to charge higher interest rates on tenant and unsecured loans. If you have frequently moved address you could find that you have more difficulty in finding a lender who is willing to give you a loan. Also having credit problems can make it harder to get a loan.
However a tenant loan can be processed quicker purely because you do not own a house that has to be valued before any loan can be arranged.
Secured Loans for Homeowners
If you do own your own property, you are known as a Homeowner and you can use the equity in your home for security against a loan.
You can borrow money at a better interest rate if you use your home as security. In other words should you be unable to make your loan repayments, the lender has security collateral in your home, therefore continuous failure to pay back the loan repayments could result in the lender legally taking possession of your house. When you get a secured loan, you will be asked to sign a security agreement; this gives the lender the right to seize the property or assets that you have stated as collateral.
There are many examples of secured loans: car loan, boat loan, home improvement loan, debt consolidation loan in fact a secured loan can be used for virtually any purpose.
A Secured Loan will usually mean that you get better interest rates on the loan, but you should always remember that your house is at risk if you fail to repay the loan.
The amount you can borrow with a secured loan depends on the amount of equity in your property. Equity is the market value of your property minus any outstanding mortgage or loans you have on it.
People with poor credit ratings will find a secured loan more easily accessible to them because the lender is taking a lot less risk themselves.
UK Loans – Non Status Loans
Otherwise known as a Bad Credit Loan or Poor Credit Loan.
Non Status usually means you have no credit rating. To have a good credit rating you should never have been in any arrears or debt of any kind.
You will have a poor credit rating if you have credit card arrears, loan defaults mortgage or rent arrears or it could be you have been declared bankrupt. If you are self employed but you cannot produce 3 years of accounts to a lender, then you can still find yourself with a poor credit rating.
A lender will go through your credit history other wise known as a credit check, before they decide whether to lend you any money. The lender is looking to see how much of a risk they are taking by lending you money. It could be that you have CCJ’s (county court judgments) for debts previously unpaid.
However you should still be able to find a lender who is willing to give you a loan. The fact that you have a poor credit rating means that you will probably have to pay a higher interest rate on a loan The lender believes that they are taking a bigger risk with someone with a bad credit score rather than a good one, because their history shows that they have been unable to make repayments in the past.
100% mortgages allow you to buy a property outright with little or no savings. For example if your purchase price is £100,000 the amount you would borrow will be £100,000. They are ideal for borrowers who don’t have a deposit, predominantly first time buyers.
There are not many Banks or Building Societies that offer 100% mortgages, but the lenders that do normally offer some form or a range of incentives – i.e. paying some or all of the set up costs or allowing you to add most of the fees and charges to the loan.
There are some disadvantages to borrowing 100% of the properties value; because you have borrowed 100% of your property value you are more at risk of going into negative equity if house prices were to fall. Some lenders like to ensure that they cover themselves for the risk by offering 100% loans but by charging either high rates of interest or a higher lending fee (mortgage indemnity guarantee) or in most cases both.