From the types of loans and your credit history to The Rental Exchange and alternative options, we’ve covered everything tenants need to know before taking out a loan.
If you’re a tenant and you’re looking to secure additional finance, you might be wondering what options are available to you.
As a tenant, you probably won’t own your own home, which means a homeowner loan is out of the question.
But that doesn’t mean you’re all out of options. In this blog, we’ll explain what loans may be available to you and possible alternatives you may want to consider.
Types of tenant loans
Tenant loans are personal loans, which are a form of unsecured borrowing. By this, we mean you don’t have to provide the lender with any form of security to be approved – unlike, for example, a secured loan.
Because of this, personal loan interest rates might not be as competitive as the rates attached to secured borrowing.
How to find the best tenant loan
If you’re a tenant and you’re looking for a loan, it’s important to do your research before committing to a deal. By shopping around and comparing what’s out there, you may be able to find a good deal.
Remember, things like your credit history, employment status, and income will determine the interest rate you’re offered, and how much you can borrow.
Your credit history
It’s not just potential lenders that want to access your credit history. If you’re applying for tenancy, landlords may want to review your credit report to make sure you’ve got a good track record of paying on time and in full each month.
This might not be an issue if you’re already a tenant, but if you take out a loan now and struggle to meet your repayments, it could hinder your ability to rent later on.
Don’t overstretch yourself
If you’re already a tenant, you’re probably already paying a set sum each month to cover your rent – along with bills for things like gas, electricity, and your mobile phone. Therefore, it’s really important you don’t overstretch your finances and only apply for credit if you’re confident you will be able to make the repayments on time and in full each month.
Before applying for any type of loan or credit, it might be worth drawing up a list of all your current outgoings, taking this away from your income, and working out how much disposable income you have left to spare.
If it’s not enough, or only just enough, to cover the monthly repayments of the loans you’re looking at, then it’s likely that taking out a loan isn’t the best financial option for you right now.
The Rental Exchange
If you’ve not borrowed money before, then your credit history may hold you back from securing the best financial products and interest rates out there. This is because lenders have little or no evidence that you’re a responsible and reliable borrower. Seems unfair if you’ve kept up with your rent payment?
That’s why Experian (in partnership with Big Issue Invest) has introduced ‘The Rental Exchange’.
In a nutshell, this initiative is to help improve tenant’s credit history compared to people who pay off a mortgage. How? By incorporating the tenants’ rent payment history on their credit file.
How it works
If you’re a council or social housing tenant, your landlord could report your rent payments to The Rental Exchange to show you have paid on time and in full each month.
If you have a private landlord with over 100 properties, they could log your rental payments with The Rental Exchange. If not, you could sign-up and schedule your rent payments via Credit Ladder. By using either service, your rental payments will automatically show on The Rental Exchange.
By registering to The Rental Exchange or Credit Ladder, and sticking to your rent payments by making them on time and in full each month, you could improve your credit history.
If you feel that a loan isn’t the right option for you, there are other lines of credit that may be available to you, like:
1) Credit cards - if you’re after a small sum of money, a credit card could be a solution. Many lenders offer a 0% interest-free period, so if you’re confident you can repay your credit within this timeframe, it could be a cheap alternative.
2) Overdraft - if approved by your bank account provider, you could use an overdraft facility. Some providers offer 0% overdrafts for small amounts, however, as standard, most overdrafts typically come with interest rates between 15-20% APR and may have additional charges.
3) Friends or family - if they can afford to help you out, friends or family members can be the cheapest and most flexible way to borrow money in the short term. You can agree a term that works best for both of you, how much you can afford to repay each month and when you are likely to repay the debt.
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