The Sun can reveal that LiveLend, which is part of challenger provider Chetwood, has teamed up with credit score company ClearScore to deliver the new loan.
You’ll be able to borrow between £1,000 and £12,000 from the lender over a 12 to 60 month time frame with interest rates varying from 9.9 per cent to 36.7 per cent depending on your circumstances.
For every 25 points of improvement you make to your credit score, you’ll see 2 per cent shaved off the interest rate on a three monthly basis – down to a floor of 7.9 per cent.
But if your credit score goes down, you won’t see your interest rate rise.
The lender reckons one in four (25 per cent) of people who take out the loan will see their rate drop within the first three months, with almost half expected to have their rate slashed after twelve months.
Boost your credit score
- Check your credit report and making sure all the information is accurate and up to date and fix any mistakes
- Get on the electoral roll
- Make sure your name is on all your bills
- Make loan and other repayment in full and on time
- When looking for credit, use tools that “soft search” your file rather than damaging your score with a “hard search”
- Don’t make too many credit applications in one go.
It’s hoped the loan will encourage people to boost their credit score, which in turn will help them to access other financial products in future.
Plus, LiveLend promises not to charge any fees – whether that’s for taking out the loan, repaying it early or even missing payments.
Julia McColl, head of customer at LiveLend, said: “Many ordinary borrowers don’t qualify for the headline rates that are plastered in bank windows.
“You’ll either be offered a far worse rate or be rejected outright.
“And when you’re accepted for a loan you’re viewed as the same person for the entire term, often over many years. Our tech changes this, improving your rate as you improve your score, across the lifetime of your loan.”
But the loans are unlikely to be the cheapest on the market. Using comparison website MoneyFacts, The Sun found the best rate on a £1,000 loan for 12 months, for example, was just 9.5 per cent including the fee.
While a £12,000 loan over 60 months cost just 2.8 per cent. This highlights the need to use comparison services to shop around before applying. Check out our guide to the top personal loans.
You can even find out which loans you’re likely to get before applying using free online pre-eligibility checkers, such as MoneySavingExpert.com’s.
On the new loan, financial expert Andrew Hagger, who runs the MoneyComms financial website said: “It sounds a decent scheme, but my concern is that some people will plump for this without trying mainstream providers and end up paying over the odds.
“The best loan rates on the market if you borrow £7,500, for example, start at 2.8 cent APR.
“I appreciate that these rates are offered to people with perfect credit ratings, but even with a slightly imperfect score you may still get a rate below 10 per cent.”
Loan shopping: what you need to be aware of
But you can check your eligibility with tools, such as ones from MoneySavingExpert or TotallyMoney, which will show you what loans you are most likely to be accepted for.
According to money expert Andrew Hagger, smaller loans tend to come with higher APRs than if you were borrowing a larger sum – so in some cases it might be worth you putting your spending on a 0 per cent or low-rate purchase credit card instead.
Before applying, make sure you work out what you can afford to pay realistically each month – and borrow as little as possible over the shortest length of the loan.
Only those with the best credit histories will get the headline rate – and only 51 per cent of successful applicants need to be offered the rate for providers to advertise it – so you will likely be offered a worse deal if your credit history is a little patchy.
Make sure you know what the penalty will be if you repay your loan fully before the term is up – it’s ususally between one and two months’ interest.
But Mr Hagger added that people should be encouraged to check their credit score, which is a strong indicator of whether you’ll be able to take out financial products including credit cards and mortgages.
He said: “I think encouraging people to sign up for their credit score is good.
“I think it should be mandatory when you take out a loan, credit card or mortgage – unfortunately too many people don’t realise how important it is.”
Rachel Springall, an expert at MoneyFacts, added: “It’s encouraging to see more innovation in the personal loans market that allows borrowers to acquire finance where they may otherwise be turned down, or are forced to turn to a more expensive alternative.
“Those who may not have the most immaculate credit rating will be given the chance to borrow sensibly and be encouraged to improve their credit score for a cheaper rate at the same time.
“Unlike many other more traditional loans, borrowers can repay their loan early without incurring earlier repayment fees.”
“All in all, this will be a great alternative for borrowers who need short-term finance quickly but who also aim to pay off the loan before the end of the term.”
The loan is available from today but be aware that it can only be applied for and managed online.
Millions may be due payday loan refunds as lenders warned about offering unaffordable loans.
But payday loan firm Cash Genie recently revealed it won’t pay £20million owed in compensation to customers.
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