Since it first hit the UK at the start of 2020, coronavirus – or COVID-19 – has had a huge impact on the economy.
It has also changed things for people who want to take out a personal loan. Because so many people’s financial circumstances have changed, responsible lenders like Koyo have taken extra steps in order to ensure that we continue to lend money in the right way. We have a duty to lend money carefully, to people who can afford to pay it back – providing our borrowers with fair, fast and flexible access to credit.
In this article, we’ve addressed a few of the questions that have come up recently, with help from our Head of Credit Risk, Paul Martin.
Does coronavirus mean that lenders have stopped offering personal loans?
The short answer is no: Koyo – and many other lenders – continue to offer loans, with careful credit checks in place. However, it is true that coronavirus has made it somewhat harder to access a loan – we’ll explain why below.
Before we do so, it does look as though some other loan providers have shut their doors altogether – at least for the time being. So, while some borrowers might previously have had their pick of dozens of different loan providers, there is now less competition.
So why is it harder for some people to borrow money? There are two factors at play: firstly, lenders have a duty to lend only to those people who are likely to be able to comfortably repay a loan, and as the economy has become more challenging, responsible lenders like Koyo have been carrying out extra checks.
So are lenders using additional criteria when approving loans?
Yes. All lenders want to be sure of the basics: that you are who you say you are and that you don’t have a history of defaulting on loans, for example.
That hasn’t changed, but lenders will now take extra steps to make sure that loan applicants aren’t likely to have a change in circumstances, which would make it harder for them to repay the loan. So, lenders will be looking at which employers and industries are most likely to be affected by coronavirus, for example.
Can I still take out a loan if I’ve been furloughed, or have had to take a mortgage holiday?
This brings us to the second reason it might be harder to take out a loan – your personal circumstances may have changed.
It’s always important that you inform your lender of any changes that might affect your ability to repay a loan, and either of the examples above (a change in employment terms or a mortgage holiday) would qualify. But neither would rule you out altogether, as good lenders try to look for lots of different factors in order to get a balanced view.
If you have been furloughed for example, it may mean that a loan is now unaffordable. Or, you might have been able to reduce your expenses and be expecting to re-enter full time employment soon. If that’s the case, some lenders might be comfortable providing a loan – particularly if you can show that the repayments would be very affordable (that is, your salary covers your expenses with plenty of room to spare.
It’s also worth noting that Koyo has an advantage over other loan providers here: Open Banking allows us to get a fuller, fairer picture of that borrower, and offer credit where others might not be able to – potentially at a lower rate.