Rate for risk
It’s a saying you’ve probably heard so many times by now that it’s almost lost all meaning.
But when it comes to finance, the interest rate the lender applies varies based on the risk of the application.
The higher risk the application, the more likely you are to default, or the less likely the lender will be able to recover their loss if they have to repossess the car, the more the lender has to charge to offset their risk.
Lowering your risk
To lower your interest rate you need to lower your risk. There are many factors that lenders look at when calculating the risk of your application.
How long have you been in your job? Are you full time employed? Part time? or casual?
Residential history is important as well. Whether you’re renting, boarding, have a mortgage, or own your property outright, are all taken into account by the lender to calculate your risk.
Some factors you won’t have much control over, there are some things though that you can control.
How to lower risk
Well conducted current accounts – With almost all personal loans, as a minimum the lender will assess the last 3 months of your bank statements to see how your accounts are conducted and determine your risk based off your pattern of spending.
If you regularly overdraw your account, if there is a high level of gambling conduct, or regular withdrawals of large amounts of cash from pub ATMs, these can demonstrate a high risk pattern of spending that can get your application declined. If you have current loans, the lender will often want to see statements of those as well.
How do lenders access risk?
If your funds aren’t being managed the best, or if you have late payments on your existing debt, it would probably be best to wait until you’re in a more stable financial position before applying. Some people will apply regardless, just to see what happens, however getting an application declined will make it much harder for you to get approved when you are in a better position. Firstly, your credit score is reduced with every application that is submitted through to a lender. The main thing however, once a lender sees the bad, they can’t un-see it.
For example: if you have an application declined due to a high level of gambling conduct on your bank statements, when you re-apply, your application will be viewed with much greater scrutiny. You may have reduced your gambling considerably and only have a cheeky punt on your favourite team once or twice a month now, but given the fact the lender had seen how risky things were previously, you could still be declinedbased on gambling conduct as it is not non existent. If the lender hadn’t seen the worst of it, they wouldn’t scrutinise a low level of gambling so heavily.
Timing is key
If you’re unsure whether your application will be suitable for approval or not, talk to one of our finance professionals today.
For no cost, and with no obligation, we can do a full assessment of your circumstances and statements, and give accurate advice regarding whether you’re in a position for a finance approval, or if not, we provide a clear list of instructions of what needs to be done on your end so we can help you out in the near future.
We ensure every time, that your application is presented at the best time, to ensure you will always get the best result and best deal.