Loans, Moans and Problems with my Bank

Can’t get a bank to give you a loan? Here is a way to build up an excellent credit record. If you don’t have a credit record, not even car loans and you both work, say, as freelancers, you would like to know why it is so difficult obtaining a loan and why you are being prejudiced against. Well let help you.

There are two aspects to the answer:

  • First of all, when people have no credit record it is more difficult for lending institutions to assess their credit-worthiness.
  • Secondly it is difficult if individuals freelance or are self-employed to guarantee a fixed income, therefore could affect their repayments (according to the banks).

Problems with your bank if you are a freelancer or self-employed:

  • Financial institutions want to be sure you will be able to honour your home loan without difficulty.
  • Therefore they closely inspect your income and expenses by using your average earnings over a six month or yearly period to determine whether you can afford the monthly repayments.
  • If your income fluctuates from one month to the next, and you either earn part-time, commission-based or freelance work, chances are banks will automatically adjust the average down to cater for these variations and give the customer a fair chance to meet the loan agreement.
  • Obviously the conservative approach is chosen to ensure applicants can repay the loan in good months as well as in tough times.

This is what you can expect if you are looking for an unsecured loan and what it means:

  • An unsecured loan is just that – unsecured and requires no assets as collateral against the loan.
  • Unsecured loans are often more expensive to take out as there is no security against the amount borrowed therefore the lender is at risk.
  • Amounts borrowed for an unsecured loan is often less than amounts borrowed for secured loans.
  • These unsecured loans are usually determined according to your credit history and your income.

Your credit record and your home loan:

  • The financial institution may go back up to two years in your credit record when applying for any loans to see if you honoured credit agreements.
  • This information is used to calculate your credit risk.
  • If they have no record to evaluate your credit rating they might not be keen to offer you a loan.

Ways to clear up your credit record and sort out problems with your bank:

  • Start building up a good credit record straight away.
  • The office of the credit ombudsman suggests you start off by Basic Cheque/Current Accounts and pay these off regularly which will immediately create a good credit profile.
  • This could be anything from a credit card through your bank or a store card – even a cellphone account – in other words any credit through a reputable institution.
  • Paying the accounts regularly and in full will build up a good credit record.

You and your home loan:

  • Banks are providing individuals with home loans but with varying conditions.
  • The amount will have to be affordable to the applicant.
  • The banks take in other expenses which in most cases need to be less than 35% of your gross income and the home loan repayments less than 30%.

If you are looking for home loans but are experiencing problems with your bank, first build up a good credit record.