In recent years the most acquired loans in the UK have been 12-month loans. These loans allow borrowers to breakdown a large amount into 12 feasible repayments across the span of one year. This way loan applicants can make repayments without missing deadlines and improve their less than average credit score.
As an example, let’s say the loan amount borrowed is 300 pounds and the monthly payment amount is 27 pounds. After 12 months the total amount repaid will be 324 pounds and 24 pounds is the total interest paid.
What is the Eligibility Criteria for 12 Month Loans?
Most lenders require you to meet all the conditions listed below in order to acquire a 12 month loan.
- The applicant should be above the age of 18.
- The applicant should be a UK citizen and reside in the country.
- More preference will be given by lenders if the applicant has a good credit score.
- Similarly, if the applicant has a steady source of income, they will receive better offers and rates.
- The applicant is not required to place collateral when availing a 12-month loan.
- The applicant is not required to bring a guarantor even if their credit score is below average.
What are the Advantages of 12 Month Loans?
People who have an adverse credit record mainly avail 12-month loans in the UK. These loans are extremely popular due to there being no need for a guarantor, competitive Annual Percentage Rates (APR), easy loan repayment cycles, hassle-free application process and availability of borrowing small amounts.
- These loans are extremely useful in a financial emergency.
- 12-month loans do not include any hidden charges.
- 12-month loans are easier to repay when compared to other loans (personal and payday loans generally have high-interest rates).
- These loans can be availed by people who have a low credit record.
- The process of applying for a 12-month loan can be done completely online.
- Many lenders approve applicants without the need for a guarantor.
- Lenders can approve 12-month loans almost instantly. Within 24 hours the money will be deposited into the applicant’s bank account.
- Lenders offer competitive interest rates to encourage low credit borrowers.
- Lenders also offer personalized 12-month loans based on the applicant’s financial condition.
What are the Factors that Influence Your Interest Rate?
When availing 12-month loans in the UK, you will notice that the interest charged by most lenders is higher than the Bank of England interest rate. This is done by lenders in order to account for the risk involved in loaning you the money. However, there are factors that can influence the interest rate for each individual which are listed below.
The Applicant’s Credit Score
The main key factor when availing 12-month loans is the applicant’s credit score. A higher credit score can result in better loan interest rates offered as lenders will perceive the applicant to be a trustworthy individual.
The Applicant’s Repayment History
For availing a 12-month loan, the lender will check the applicant’s repayment history. If the borrower has made their prior loan payments on time and in full, the repayment history will work in their favour when seeking approval.
The Applicant’s List of Defaults
If the applicant has defaults that reflect on their credit file, lenders will still allow them to acquire 12-month loans but charge a higher rate of interest. Certain lenders will reject the application if the borrower’s credit profile has 2 or more defaults.
The Reputation of the Applicant’s Employer
Lenders who offer 12-month loans also look into the applicant’s employment status which includes name and operations of the employer, reputation and public relations. Applicants working for big corporations are generally offered lower interest rates.
What to Look for When Comparing Loans in the UK?
Annual Percentage Rate
When availing 12-month loans, search and compare all lenders to ensure you find the best Annual Percentage Rate (APR). This rate includes loan interest, service fees and other hidden charges. Loans with high APRs such as guarantor loans, payday loans and bad credit loans are more expensive to pay due to high repayments.
Fixed or Variable Interest Rate
When availing this type of loan, check if you have a fixed or variable rate of interest. A fixed interest rate is when a predetermined amount goes towards loan payments every month.
However, a variable interest rate is when the loan payment amount varies from month to month. Loans with variable interest rates cost less but there is a constant risk of them increasing.
Duration of Application Process
Depending on the lender, the application process of 12-month loans can vary. Most lenders will either approve or reject your application within 24 to 48 hours. It is advisable to use a loan eligibility checker online to see your chances of approval before approaching a lender. This way your credit score will not be affected.
For secured loans, the repayment cycle will be over a longer period with lower monthly loan payments (the average mortgage is 20 years). However, the longer payback duration will still cost you due to the interest charged. For unsecured loans, the repayment cycle is between 1 to 7 years.
12-month loans are gaining popularity in the UK because of their fixed repayment cycle of 12 months. If you can keep up with the monthly repayments, this type of loan is ideal and can help in improving a bad credit score over time.