Borrowing Better

We want to lend to members, but sometimes we have to say ‘No’

We are here to help members save when they can, and borrow when they need to… so why do we refuse loan requests?

Sometimes it’s a clear black and white decision:

• We don’t lend to anyone who is under 18.
• We don’t lend to anyone who is an undischarged bankrupt, or entered into an Individual Voluntary Arrangement (IVA) or a Debt Relief Order (DRO), or any other legally agreed debt protection arrangement.

Sometimes there are shades of grey:

• A County Court judgement a few months ago will make us hesitate, but not necessarily refuse a loan.
• But two recent County Court judgements show there is a problem with your finances and borrowing more will probably only make things worse.

Mostly though, it’s not a question of black, white, or shades of grey. It comes down to affordability.

While you may want a loan, you will want a loan that is not a burden every time you have to make a repayment. You also want a loan that you can be sure to repay, so you improve your credit history.

We have a common interest here. We also want to make loans that will be repaid, otherwise we make losses and drain our reserves. It is better for you and for us if we make sure we offer loans that are affordable and get repaid.

When do we mostly say ‘no’?

Most refusals are for Standard or Personal Loan requests. These are made to members who have little in the way of savings, though they have repaid a loan before. The Standard Loan has its place: it should generally be used for borrowing you have not planned, like repairs to a car, or replacing a broken fridge.

If planning ahead is not possible and we just said ‘no’ ask us why: we’ll always give you the reason. Maybe we’ll say ‘yes’ to a smaller loan.

The Standard Loan comes at some of our higher rates of interest. If some planning is possible, you’ll always do better with a Loyalty Loan.

What makes the Loyalty Loan a better choice?

Members who qualify for a Loyalty have been saving for at least 3 months and they have saved at least £100, so we know these members can afford to set aside some money for saving or repayments. Clearly that gives us more confidence when we lend, and with that confidence, comes a lower rate of interest.

We still need to check the loan is affordable, so we will ask questions about your income and fixed expenses to check the loan makes financial sense within your budget.

How to make sure you can afford the loan you want

You can prove the loan affordability to yourself and to us if you prepare by saving the planned repayments for a few months before you apply. For example:

you want to borrow £1000 and repay it in monthly repayments over a year each monthly repayment will be £88.13

Open a start saving bonus account, save £90 per month into it. After 3 months you can apply for your £1000 loan and show the repayments will be affordable. Better still, if you keep topping up the savings in your start saving bonus account, after 10 months you will earn a £10 bonus.

If a £90 monthly saving seems too much, then you know that loan would be difficult to repay. So you could try working with a longer repayment period. Our loan calculator will tell you exactly how much the repayments will be, in the example here, it is £39.25 monthly over 3 years.

Go one better

We also pay a bonus to members who prepare their own Money Course budget. If you have not done a budget yet, it’s a good way to learn where your money goes and take control of your finances. It’s also a good way to demonstrate the loan you want is affordable, and it’s a pretty good way to earn £25.

Find out more about the Money Course here and about the budget bonus here.