The post-COVID-19 period has been hard on tenants and landlords alike. Some tenants who lost their jobs or were put on furlough couldn’t afford to pay their rent. As a result, landlords have had to incur losses for a prolonged period, owing to the lack of rent, unable to evict the tenants.
Fortunately, the UK Government is considering a rent arrears loan for tenants struggling to keep up with their rent. After Scotland and Wales, it is anticipated that England will roll out a loan scheme for tenants in arrears.
While this initiative is still on an unstamped paper, there is a specialized personal loan available to alleviate the crisis of tenants – a tenant loan.
In this article, we will understand the concept of a tenant loan and how you can avail of one.
What is a tenant loan?
Tenant Loans are essentially unsecured personal loans, ergo, you don’t need to declare an asset as security against it. The lender will assess your application based on factors like:
- Your credit history – through a credit report
- Your creditworthiness – determined from your credit score
- Income and affordability
- Your ability to repay the loan
- Whether you’re registered on the electoral roll
So long as you can demonstrate a history of responsible credit behavior as well as the capability to repay, lenders don’t require security or a guarantor.
Who can borrow a tenant loan?
You’re considered as a tenant if you’re living in a rented accommodation that may be of the following nature:
- Sharing a joint property with your friend(s)
- A rented apartment with an unknown housemate
- Living in your parents’ home
- Sharing a home with extended family
A tenant loan is ideal for someone who is living in a rented arrangement, looking for personal finance.
The Rental Exchange – helping tenants with no credit history
If you’ve taken out a loan in the past, proving good credit conduct is relatively easier. But what if someone who has never borrowed money needs a loan?
We know how crucial credit history is for the success of a loan application. But having none might hold you back from securing certain financial products and interest rates. A credit history helps lenders determine your reliability as a borrower. But if you’ve always responsibly paid your bills and rent, doesn’t it seem unjust to boil everything down to credit history?
This is where The Rental Exchange would come in handy. The Rental Exchange is an initiative by Experian, in association with Big Issue Invest, which helps tenants with no credit history. Herein, the tenant’s rental payment history is added to their credit file.
Social Housing or Council tenants could ask their landlords to report rental payments to The Rent Exchange. So every time you pay rent in full and on time, it is going to contribute towards your credit history.
Even private landlords can log your payment activity with The Rental Exchange. All you need to do is pay your rent on time and in full each month to build your credit history from scratch.
Benefits of a tenant loan
The biggest advantage of a tenant loan for a tenant is the fact that they don’t need to serve an asset as collateral. Below are some reasons due to which a tenant loan might have an edge over other financial products:
- You can use this loan to serve any purpose: Most lenders request details about the purpose of your loan. However, that’s not the case for a tenant loan. You are free to use this loan at your convenience. You may use it to make a purchase, pay bills, or cover a month’s rent. You don’t necessarily have to be facing an emergency to take out this loan.
- The loan term is flexible: Tenant loans have a flexible loan term, meaning you can choose a term best suited to your ability to repay. You can set the loan term anywhere between 1 and 7 years. Although borrowing for a longer-term may cost your additional interest.
- Requires less paperwork: A tenant loan requires less paperwork compared to other loans. All you need to provide is your latest payslip, employment proof, and proof of tenancy. Submitting a complete application along with relevant documents can increase your chances of getting approved for the loan.
- A credit score is not the only basis to qualify: When lenders assess your credit profile, many of them can have a stringent criterion with regards to the credit score. The chances of getting a loan at a decent interest rate, are slim for those with a below-average credit score. Lenders typically base their decision on their judgment of your capability to pay, albeit, they might make a soft credit check on your profile. However, proof of a stable job and source of regular income is their key concern. As long as you can prove to repay your loan, your chances of getting approval remain high.
Alternatives to a tenant loan
If you’re stuck in an emergency and can’t get a tenant loan, there are other ways to get some funds that you can opt for:
- Overdraft: If you’ve never availed an overdraft, you can get in touch with your bank and use this facility. This allows you to use more money than you have in your account. Interest rates on an overdraft are usually around 15-20% APR. Additional charges on an overdraft will depend on your bank.
- Credit card – If you only need a small sum of money then this may be a better option than a tenant loan as many providers offer a 0% interest-free period. However, read the contract thoroughly and check for loopholes.
- Friends and family – The cheapest and most flexible way to borrow money is to ask friends or family members to help you out. You can agree upon a term that suits you both and you are unlikely to have to pay interest.
Try not to overstretch yourself
Being a tenant isn’t easy. Many monthly expenses need to be taken care of – rent, gas and electricity bills, cellular bills to name a few. Thus, you must think this through before arriving at a conclusion. Introspect and ask yourself if you are overstretching your finances.
If you’re struggling to manage your finances and direly need some help, it is important to shop around for loan offers. Let Loan Princess be your helping hand – visit us now to find your ideal loan.