Unsecured loans are personal loans that you can borrow to meet unexpected expenses. As the name suggests, they are not subject to collateral. It means you do not have to bear the risk of losing your collateral in case of default. However, borrowing money from a direct lender is not a cinch. Various direct lenders are offering these loans, but not all are registered or authentic.
Choosing the right lender is extremely important as it increases your chances of getting money at affordable interest rates. Every lender has its own methods for calculating the risk involved in lending you money. Their lending decisions are not solely based on your credit score, which credit reference agencies calculate.
Smart ways to take out unsecured loans from reputable direct lenders
It is vital to ensure you borrow from reputable direct lenders, but there are certain formalities you need to follow. This blog discusses them.
- Check your credit score
First off, you need to check your credit history. If you are actually serious about borrowing money from a reputable direct lender, your credit history must be stellar. One of the main reasons why borrowers fall into the trap of illegitimate lenders is that they have a poor credit rating.
When your credit score is not up to scratch, you cannot be eligible to borrow money from a reputable direct lender. There are some lenders who might be loan sharks and target subprime borrowers.
Before you apply for a loan, you should carefully check your credit report. There are three agencies: Experience, Equifax and TransUnion. You can get a free copy of your credit report from all these agencies. Make sure that your credit score is not poor because of unidentified accounts and erroneous information.
- Improve your credit score
If your credit score is already bad, do it up. Your good credit rating will help you borrow money from reputable direct lenders. It does not mean that reputable direct lenders do not accept applications from bad credit borrowers, but you are highly vulnerable to getting trapped in expensive deals by unregistered lenders. In order to improve your credit score, you should consider taking up the following steps:
- You should try to pay all your bills off on time. On-time payments will help improve your credit score.
- Focus on your credit utilisation ratio. It must not be more than 30%. This ratio represents how much of your credit card limit you have used.
- Pay off your credit card bills on time. Make sure that you settle your credit card balance before your creditor informs credit reference agencies of your balance.
- Avoid having short-term high-cost debts such as payday loans.
- If your credit history is stellar, you will not have any problem getting money from a reputable direct lender.
Avoid borrowing money from no-credit check lenders
There are some lenders who claim to provide loans with no credit checks. It is worth noting that no lender is authorised to lend you money without running a credit check. Hard inquiries will be made in order to check your credit history. If you borrow a small amount of money, such as £500 or less, lenders run a soft check.
Those who run neither a hard check nor a soft check are loan sharks. They are not registered direct lenders. You should beware of such lenders, as they are loan sharks. They charge exorbitant interest rates. Such lenders offer a small amount of money that comes with a shorter repayment length, which is about 14 days.
If you fail to repay your debt, you will have to roll it over. The late payment fees and interest penalties will be charged, which quickly increase the size of the debt. Eventually, there is a huge risk of falling into an abyss of debt.
There are various lenders who provide accessibility to instant cash loan with no credit check. You should beware of such loans because they might throw you into an ongoing cycle of debt. Once you fall into it, you will fail to get out of it.
- Check registration details
While borrowing money from a direct lender, you should carefully check the authenticity of the lender. They must be registered with the FCA. You can check their registration details by visiting their website, but you can also access this information by visiting the FCA Register. You just need to type the name of the lender.
If it says the lender is not registered, you should beware of them. Unauthorised lenders might charge a very high amount of money. One of the drawbacks of borrowing from unregistered lenders is that you will not be able to file an affordability complaint, as it was your sole decision to choose to borrow money from such an unregistered lender.
- Verify the lender’s credibility
While it is crucial to check the registration of a lender, you should also check whether the lender is credible. Having registration is one thing, and having good relationships with borrowers is another. You should carefully check online reviews. This will help you know their lending behaviour.
It is likely that the lender exercises unethical practices, such as asking for cash as security. The lender might not be prompt to reply to customers’ queries. If such issues come to your notice, you should consider the lender a red flag. You might end up with unnecessary hassle.
- Check how much you need to borrow
If you want to take out unsecured loans from a direct lender, you should first determine how much money you need and how much you can actually afford to pay back. While it is impossible to know actual interest rates and annual percentage rates, you can get an estimate.
Reputed direct lenders will approve your application when they are certain about your affordability. If they find that you would not be able to pay back the money, they will refuse you. However, unregistered lenders target subprime borrowers, and they are not as strict as reputable direct lenders. For the sake of profits, they would not bother to reject your application.
Reputed direct lenders try to assess your affordability before lending you money. The affordability check includes an assessment of your repayment capacity in addition to your credit score.
You should always try to determine your affordability before borrowing money because, in the end, if there is anyone who is going to suffer, it is you.
The final word
Reputable direct lenders are registered lenders. If you are looking to take out an unsecured loan, you should always ensure that the lender is registered with the FCA. However, it is not enough. At the same time, you need to check they are strictly adhering to the FCA guidelines. Some lenders exercise unethical practices. Check online reviews to know what their existing borrowers have said about them.
Keep your credit score in good condition so that you do not have to apply for no-credit-check loans. Such loans are offered by loan sharks. It is likely that you will fail to discharge your debt on time. This can trap you into an ongoing cycle of debt. Your chances of borrowing money from a reputable direct lender are high if your score is good and you have repayment potential.
Tags : Direct Lenders
