Borrowing money in a difficult climate
All loans have similarities in some way and banks have various guidelines on what’s important before they lend you money. You borrow a certain amount (the principle) for a certain time period (the term) at either a fixed or variable interest rate. Some loans require that the principle is repaid all at once while others stipulate regular installments over the term as is the case for car and home improvement loans, for example.
- Secured vs Unsecured
Loans can be either secured or unsecured, and knowing the difference between them and the implications associated with each is vital. Typically car and home loans are secured credit; your commitment to repay the loan on either asset is secured by the asset – the car or house. If you fail to make the repayments, the lender may be able to seize the asset through repossession and sell it to recoup the outstanding balance. Typically loans secured against an asset are not as costly as those that are not (unsecured).
Are you a good bet and will the banks see their money returned to them as per the scheduled terms of the lending agreement? Lenders look at repayment capacity first and foremost as opposed to income when it comes to lending money. What you earn is still an important factor, but it’s matched with a number of other considerations, such as:
- Debt to income ratio
- Value of assets if secured against outstanding loans
- Credit history, including your banks internal credit score if borrowing from them and your Irish Credit Bureau (ICB) report
- Marital status
The list goes on and it varies from lender to lender. If you don’t have an immediate need to borrow, then you should speak to your lender about their requirements. This gives you the opportunity to get your ‘house in order’ before you apply.