What is an affordability score?
When you apply for a personal loan, you need to ask yourself whether you can realistically afford the monthly repayments. But you’re not the only one looking at affordability. The lender will also assess your current financial position to understand if you can afford the payments and how likely you are to default. They do this through an affordability check and your affordability score.
Here we’ll look at the key things lenders look at when they run an affordability assessment, what it means for your loan application, and what you can do to improve your affordability score.
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A loan offer that’s right for you and your circumstances
How is your affordability score calculated?
Your affordability score is all about how much you earn, your day-to-day expenses, and what you can afford to pay back. It focuses on your financial position in the here and now.
Companies like ClearScore help calculate your affordability score. With ClearScore for example, you’ll get a score out of 100[1], which is based on your income and your everyday spending from your bank accounts.
What is an affordability assessment?
When you apply for a personal loan with a lender, they need to decide if you can afford to repay the loan and meet your monthly repayments. They do this through an affordability assessment, taking into account the following factors:
- Your employment status: Lenders will check whether you are employed or self-employed. They will want to know how regular your income is.
- Monthly income: You must be able to show how much money you bring in before tax as well as your take-home pay each month.
- Any extra income: This could be benefits, child support, freelance work, pensions, investments. You need to be clear on exactly how much income you have coming in.
- Monthly household expenses: Lenders will assess how much you’re paying out each month for things like credit cards, loans, and car payments. They will look at household bills including council tax, electricity and gas. They will also want to know about any other significant expenses like childcare costs.
- General expenses: This covers monthly spending on things like clothes, going out, subscriptions, memberships, and holidays.
[1] https://help.clearscore.com/hc/en-us/articles/4410322277010-What-is-your-affordability-score-and-report
What is the difference between an affordability score and a credit score?
An affordability score looks at your monthly income and outgoings right now and assesses what you can afford to pay back in regular monthly payments. A good affordability score means you’re in a position to afford the monthly repayments on top of your existing monthly spending.
A credit score on the other hand looks at your history of borrowing and whether or not you’ve been responsible with credit in the past. A good credit score tells lenders you’re less of a risk, as you’ve borrowed responsibly before.
Lenders will look at both to understand your suitability for a particular loan.
Can I pass an affordability check with bad credit?
Lenders will look at creditworthiness as part of your affordability check, so the two aren’t mutually exclusive.
If you have bad credit from previous financial problems or issues with borrowing in the past, you may struggle to get a loan. Lenders will likely view you as high-risk. But you may still be able to secure a loan with poor credit. Often there will be a smaller pool of lenders willing to lend to you, at higher interest rates.
If you are accepted for a loan with bad credit, this can help your credit score over time. Making your monthly repayments every time shows responsible borrowing which may eventually start to improve your score.
How can I increase my affordability score?
In the long term, if you can bring more money in with a new job or potential freelance work, for example, you can increase your affordability score.
While that might not always be possible, there are things you can do in the short term to boost your score. Managing your finances well, keeping on top of your payments, and staying within your budget all increase your chances of passing an affordability check with a lender. A good credit history will help too.
Make sure you:
- Stay within your monthly budget
- Are up to date with all your accounts
- Pay your bills on time
- Cut back on unnecessary spending
If you have savings in place too, this can help with your affordability score.
What happens if I fail an affordability check?
If you fail an affordability check, most lenders won’t offer you a loan. You might find they offer you a smaller loan with lower repayments, but it’s not always the case.
Most people fail an affordability check as they might already be struggling to pay back their existing debts. The best thing to do is to look at your current financial situation and take steps to fix your affordability. Are you spending too much every month? Can you get back to a lower budget? It’s worth speaking to the lender to find out why you failed the affordability check and to understand what you can do to improve your results.
How Asda Money can help
Not only do we work with a panel of trusted UK lenders to help you find the right personal loan for your needs. But we also offer free, impartial advice and support on all things money through our Financial Support.
Whether you need help understanding terms with our jargon buster or you want to check your financial health, we’re here to help. We also provide information on any financial charities that may be able to assist with your personal situation.
Top Personal Loans FAQs:
- Why choose a Personal Loan through Asda?
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Customers could access great rates from carefully selected trusted lenders, so you can sit back and let us do the leg work. What’s more, when you search for a personal loan, you’ll only have a soft search on your credit history, which means you can check your eligibility without harming your credit score.
Once your loan is approved, you could receive your funds the same day.
- How does it work?
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Asda is in partnership with Aro which is a trading style of Aro Finance Limited, who are a leading credit broker to offer our customers a different solution to borrowing money and finding a loan. We work alongside Aro so we can provide our customers with the right offer from a panel of handpicked trusted lenders.
With one eligibility check, you can search a panel of carefully selected lenders and provide you with a loan tailored to your needs. Once you have been approved you will receive your funds which could be in your account as quickly as the same day.
So sit back, relax and let us do the hard work.
- Who are your lenders?
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We have carefully selected a number of trusted lenders to be on a panel. You can search the panel to provide you with the very best offer you are eligible for. Find out more about each of our lenders here.
If you have any questions on our lenders, please call our Customer Service Team on 0333 555 0560 and a colleague will be happy to help.
- What commission does ASDA Money receives in connection to an introduction to Aro?
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If you take out a product through Aro, Asda Money will receive a commission payment from Aro. The amount charged will be in connection with the specific product selected and so different amounts of commission are received. The amount will be either a fixed amount or a percentage of the amount you take out, yet it will not impact the amount you pay back.
Should you wish to find out more about the commission paid to Asda from our introduction to Aro, please get in touch by emailing: compliancehelpdesk@aro.co.uk
- How much can I borrow?
- Will applying affect my credit rating?
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No. One of the best things about our service is you get access to a panel of trusted lenders with no hard credit footprint left on your credit file. When you apply with us, a soft search is completed which doesn’t harm your credit score.
However, if you do proceed with an offer from your search with us, the lender will complete a hard search. This will show on your credit file.
- What credit score do I need for a bank loan?
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Strictly speaking, there is no minimum credit score for you to be approved for a personal loan. If you have a strong credit score, more lenders may be willing to lend to you with better interest rates on offer. If you have a lower credit score and have had problems borrowing in the past, you may find a smaller pool of lenders are willing to lend to you. You may even have to look for a specialist lender that offers loans for bad credit.
- Can I get a loan with a CCJ?
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If you have a county court judgement (CCJ) against your name, you may struggle to get a personal loan with mainstream lenders. However, you may find specialist lenders that are willing to lend to you.
- Can I borrow money with bad credit?
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If you have bad credit or have had money problems in the past, you may find that some lenders aren’t willing to lend to you. Those that are may only do so with higher interest rates. It’s worth looking at specialist lenders for bad credit loans. Or you can work on your credit score to improve it before applying for a loan.
- Why won’t my bank give me a personal loan?
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Lenders look at a variety of factors when deciding on whether or not to offer you a loan. They each have their own criteria which will take in your credit score, job, monthly income and more. If you have been rejected by a lender, you can always ask them why and hope they will give you some insight into their lending criteria. They may direct you to one of the main three credit bureaus to find out more information.
- Do personal loans look bad on credit?
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When you apply for a personal loan with a lender, this will show up on your credit file. Your credit score may take a very small hit in the short term once you take the loan out. But if you pay your monthly payments on time and in full, this can have a positive impact on your credit score.
- How to get the lowest rate for a personal loan?
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The interest rates offered by lenders depend on a range of factors including how much you’re borrowing and the length of the loan. They will also look at your credit score. To help get a lower rate, you can look to improve your credit score by signing up to the electoral register, closing old accounts, checking for any errors on your report, and paying all your bills on time. You may also consider increasing the length of the loan or borrowing less.
- Can I take out a loan if I already have one?
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Yes, you can. When you apply for a new personal loan, lenders will look at your existing borrowing to see if you can afford the second loan. Many people choose to take out a new loan to consolidate existing borrowing – whether loans or credit cards – into one loan with a single monthly repayment.
Please remember that by consolidating existing borrowing, you may be extending the term of the debt and increasing the total amount you repay.
About our trusted provider, Aro
Asda is in partnership with Aro which is a trading name of Aro Finance Limited. Both Asda Money and Aro are credit brokers, not lenders. We offer our customers a different solution to borrowing money and finding a loan.
We work alongside Aro so we can provide our customers with their very best loan offer from a panel of handpicked trusted lenders.
With one simple eligibility check, our panel of lenders can provide you with a loan tailored to your needs. It’s also a safe way to find a loan without negatively affecting your credit rating.
Other Links
ASDA Money is a trading name of Asda Financial Services Ltd who are an Introducer Appointed Representative of Aro which is a trading name of Aro Finance Limited (company number 06297533) of Dakota House, Concord Business Park, Wythenshawe Manchester M22 0RR. Aro acts as a credit broker and not as a lender and is authorised and regulated by the Financial Conduct Authority (FRN 662079).
Terms and conditions apply. UK residents aged 18 and over. If you take out a product through Aro, Asda Money will receive a commission payment from Aro. The amount charged will be in connection with the specific product selected and so different amounts of commission are received. The amount will be either a fixed amount or a percentage of the amount you take out, yet it will not impact the amount you pay back, for more information see our FAQs