Personal Loan for People in Bankruptcy
April 1, 2015
Getting personal loans after bankruptcy discharge can be a problem because your credit file will be adversely affected by the insolvency. It is possible, however, but might take a little longer to source the best provider. Some lenders specialise in this type of loan, whilst others operate a separate department within their larger organisation.
If you have formally been declared insolvent, you may be wondering if you will ever be eligible for a bankruptcy personal loan in the future. During the 12 months of your formal bankruptcy, you will be unable to borrow or obtain credit of more than £500.
Some discharged bankrupts go on to successfully apply for borrowing after the initial 12 months, despite the significant negative effect that bankruptcy has on their credit rating.
All three credit reference agencies in the UK – Equifax, Experian and CallCredit – keep a note on file of bankruptcies, or any other formal debt solution, for six years. During the period of bankruptcy you will be unable to apply for borrowing, but once discharged it is a good idea to start rebuilding your credit file.
Bankruptcy personal loans
Some debtors coming out of bankruptcy choose to apply for a credit card to rebuild their credit rating. Others prefer a small personal loan after their bankruptcy discharge, as the features of a personal loan make it more attractive. You will know exactly how much you have to pay each month, and over what timescale.
It is these fixed terms and amounts that generally attract people to personal loans for bankruptcy, rather than the flexible payments to a credit card which could be misused, landing you in uncontrolled debt again.
What can you expect from a personal loan after bankruptcy?
• Higher interest rates are the main feature of these loans. The lender will need to cover the perceived risk of lending to you as a discharged bankrupt, so expect to pay a high rate of interest compared with standard personal loans.
• The amount you can borrow will be restricted. Again, this is to reduce the risk to the lender who will want to keep the chances of default to a minimum. In a way this benefits you too, as it minimises the risk of you getting into a debt spiral again.
• Some lenders charge a set-up fee, which in this case may be higher than for a standard personal loan.
• If you miss a single payment or are late in paying, your lender may call in the loan.
• Proof of a regular income will be required by all lenders, and in the case of a discharged bankrupt, you may need to have been in permanent employment for a year before they will consider your application.
Other considerations for a bankruptcy personal loan
• It would be worth checking that the information held by the main credit reference agencies is accurate and up-to-date, as mistakes can be made. If there is an error on your report, you can apply to have a note place against it explaining the problem, or have it removed.
• Being registered on the Electoral Roll will improve your chances of getting a personal loan once discharged from bankruptcy, as it is one of the checks that lenders carry out to identify borrowers.
• A good financial advisor will be able to guide you through the process, help you find a suitable lender, and generally steer you towards the best product available. It is important not to apply for and be refused several loans as your credit rating will be further affected. This is why hiring the services of a financial advisor would be beneficial.
• Lenders that offer personal loans after bankruptcy discharge are called sub-prime lenders. They will require proof of a regular income, and will need to know your monthly outgoings in detail to assess your eligibility for a loan. Supplying bank statements and wage slips is the standard way to provide this information.
Most lending institutions operate a specific policy for bankruptcy personal loans. They may require you to have been discharged from bankruptcy for a minimum time period, two or three years, for example. Some lenders specify that you need to have successfully handled two other lines of credit since your bankruptcy.
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