Shopping around to make sure you are getting the best product and price is pretty normal behaviour, but when you are doing it to compare interest rates you could actually be affecting your credit file and lowering your chances of having a loan approved.
Why? Many lenders have policies regarding the number of loan enquiries they will accept when assessing a loan application.
Some of the bigger lenders do not accept more than 3 to 5 enquiries within the last 12 months. This includes credit card and loan enquiries where the loan was not actually taken out.
Lending policies are very detailed and differ from lender to lender, and this is because they focus on assessing the lenders’ risk in providing funds. We have seen instances where customers with strong credit profiles and faultless payment histories were rejected for a loan based solely on the number of enquiries on their credit file.
So how do you shop around for a good rate and product?
Do your research, but make sure not to complete any online or phone applications.
Once you have narrowed down your top 3 choices, contact the lenders to obtain a copy of their policies. At this stage, they will likely try to get you to apply. Don’t do it. It is important to read their policy first to make sure you actually fit with the lender.
Some lenders may not make their policy available to you, but if you are able to obtain a copy, be prepared for a night on the couch to read it. The policies are usually long and full of jargon. Some of the things you want to look for are:
- The minimum and maximum loan amounts offered;
- The minimum and maximum loan terms;
- The allowable loan purposes. Be aware that not all lenders provide funds for all types of purchases. This also applies to the individual loan products, for example, some may not accept construction of a new home or certain purchases like a caravan or horse float;
- If the security on the loan is to be secured or unsecured;
- Repayment frequency;
- Repayment options;
- Fees and charges;
- Applicant suitability which includes;
- Number of applicants allowed;
- If payment defaults will be accepted (not often the case) and under what grounds. Note that many loan applications are declined because of previous defaults;
- Number of loan enquiries;
- Employment status, history and stability;
- Living arrangements and stability;
- Income minimums;
- Proof of income; and
- Living expenses.
And this is only a summary of the main criteria you need to fit within to obtain lending.
Is there an easier way? Of course. Use a broker.
It is a broker’s job to know all of the lenders’ policies and products and to recommend products that not only best suit your needs, but ones where you will actually fit within the terms of policy.
Additionally, a broker will assist you in the application process, so all you have to do is tell them what you want and provide supporting documents. It is a much easier way to apply, with the added benefit of not damaging your credit rating.
Think of a broker as your personal shopper. Who doesn’t want one of those?