Interest Rates are Low, but Loans are Harder to Get
In recent months, banks have started lowering their interest rates, allowing borrowers to access record-breakingly low APRs. However, standards have become tighter, with many more stipulations in place preventing some prospective borrowers from accessing loans.
The current worldwide pandemic has affected all of us in different ways, with hardly anyone coming away unscathed. One of the many areas that has had to change accordingly is the world of personal loans.
What are the Effects on Loans?
Current reports show that even professionals who are probably safe from the effects of the pandemic, such as school teachers, still suffer, with lenders demanding more money to maintain the current interest rates.
However, if you can meet the raised criteria for taking out a loan, you’ll benefit massively in the current economic climate. This crisis has driven APRs down to an all-time low, and there's never been a more profitable time to borrow.
If you were considering taking out a loan of any kind, while the rates will be great, you may now be required to:
- Have an even higher credit score than before
- Put down a larger down payment
- Provide more documentation
- Prove your ability to meet interest payments long-term
While this kind of activity is normal in an economic downturn, the levels currently being seen are extreme. Some lenders have halted certain types of loans altogether; the reason being that with so many jobs being lost, and so much government aid and funding being passed around, it can be very difficult for financiers to understand a borrower's true financial health.
Credit Rating Requirements
Those with poor credit scores will find it harder than ever to access personal loans, with many lenders simply unwilling to take a risk during such hard times. Many of those lenders which are still providing low credit loans are offering short-term options with more requirement of provable ability to repay.
So while those with decent credit history will be able to access more affordable loans, those who need them the most may find themselves struggling. Many lenders are trying their best to be accommodating by offering deals such as longer periods in which a borrower can cancel their agreement should they be made redundant.
Mortgage lenders have had to become especially stringent on who they offer loans to, with the average credit history criteria rising from 640, which is quite achievable, up to 700, which is slightly harder to attain. If you find yourself hoping for a mortgage in these trying times, now would be a great time to get one, with all-time low rates. However, with this higher credit score requirement, you may be unable to access one. If this describes your situation, a decent plan would be to find a cosigner that can help you become eligible.
Other Changes to Requirements
Financiers are changing their eligibility criteria, along with their loan rates, on a daily basis, so you should be thorough with research, and act swiftly if you find a prospective loan that you like the look of.
Some financiers, while maintaining the credit score requirements, have raised their down payment minimums. While this may be a blow for those needing a loan, if you can raise this extra cash you may well save a fair bit of money in the long term through the lowered interest rates, so it’s worth considering.
Be prepared to also need a lot more evidence than you may have done in recent years. Usually, you’ll need to provide proof of your income to take out a personal loan, but now, financiers don’t see this as a guarantee of payment, with so many people losing their jobs. You may now be required to also provide proof of your savings, along with other possible sources of cash.
Though some won't have such evidence, if you do, you should take advantage of these low interest rates. You’ll likely have to undergo a much more stringent verification process and credit check than was the case only one year ago. However, if you’re able to do this, the benefits greatly outweigh the cost.
Times are hard for everyone, and loan financiers reflect that. The neediest may currently struggle to access the loans that they need. But as interest rates are at an all-time low, if you’re in need of a loan, now would be a great time to take one out. Shop around, be thorough, and try to find a loan that you’re eligible for, as it may prove a great investment in the future. Check-in with lenders regularly, as rates and eligibility requirements are changing rapidly.