COVID-19 has been one of the biggest financial strains on both personal and business finance for many people in the UK.
You could have been made redundant, put on furlough pay by your employer, lost earnings when you are self-employed or generally struggling to make ends meet, you may be looking to take out a loan. But what are your rights and is it the best option for you?
How does COVID-19 affect a loan you already have?
If you already have a loan or any sort of credit that you are struggling to pay, you should contact your lending company first before you make any rational decisions. During the first UK lockdown, many providers were offering a finance payment holiday.
A payment holiday is when you agree with your lender to stop making payments for a certain amount of time, usually due to decreased income. However, the money will still have to be paid back once your payment holiday is over. Taking out a payment holiday does not get rid of money owed but pauses your payments instead.
The Financial Conduct Authority has also agreed to extend the payment holidays for many loan and credit card for up to 6 months during the second national lockdown too. If you are interested in a payment holiday, you should contact your lender to see how they can help with your repayments and if they can offer a payment holiday too you. It is recommended that if you can afford to still pay back your loan or credit each month then you should continue to do so on time and in full.
Increase your credit score before applying
To increase your chances of getting approved for any sort of loan, you should consider increasing your credit score first. Usually, if you have a higher credit score then you can benefit from lower interest rates. For example, if you were looking for car finance with bad credit then usually your APR will be higher than other applicants as the lender sees you as more of a risk. To put yourself in the best position when applying for bad credit car finance, there are a few easy ways in which you can increase your credit score.
- Check your credit file and fix any mistakes by contacting your credit referencing provider.
- Register on the UK electoral roll so lenders can quickly identify your information and living address.
- Make all your payments on time and in full
- Use a credit building card to show evidence of a strong credit history.
- Close any unused credit accounts, bank accounts or store cards
- Don’t make multiple applications for credit or finance in a short space of time
- Keep your credit utilisation low to show you can manage your credit responsibly
- Disassociate yourself from any financial links who you no longer have any active credit with.
Can you get a loan on furlough income?
At the start of the furlough scheme, over 9 million people in the UK claimed furlough wages. With this in mind, does it affect your chances of getting a loan or mortgage? Furlough payments are usually when you receive 80% of your wages.
For many people this is a big decrease in their wage’s month on month. Forms of credit such as car finance, credit cards, personal loans and payday loans can be obtain by a number of lenders when you receive furlough payments, but you will need to check with each individual lender.
The furlough scheme has been extended in 2020 as the covid-19 crisis is still ongoing in the UK and has been a lifeline to many. Although this has caused difficulties with large credit agreements such as mortgages, as may will find it harder to obtain whilst receiving furlough pay. Some of the biggest lenders have even refused to accept applicants who received furlough pay. If you are looking to get a mortgage in 2020, it is best to speak with a mortgage adviser first.
Check if you’re eligible for government grants
If you’re struggling to meet repayments or need to take out a loan, you could consider the government grant options first. Many businesses can benefit from small business loans and also local business grants. Self-employed workers can apply for the self-employment income support scheme. You can also receive £500 from the government if you have been diagnosed with covid-19 and are unable to work from home. Check the GOV.UK website for advice on all the grants available.