If you have a history of poor loan repayments, then it is going to be tough to get another loan.

It is a cold, hard world out there, and lenders, like banks and the big finance institutions, look at your situation without any sentimentality. You will find this strange and even unfair when you first run across it. Because you know yourself and your situation. You know you have a job that you can probably count on keeping. And you know that you do intend to make all the loan repayments on schedule this time.

How a lender views someone with a history of bad credit

But the bank does not know you. And even if it did, it is looking at other factors. Knowing how the banks and other lenders think when you approach them for a bad credit loan will help you.

The banks, and the informal lending sector that frequently specializes in lending to people with poor credit histories (at high rates of interest, true), have a list of things they consider when you ask to borrow some of their money.

What factors influence a lender

Capacity to repay is the first thing they thing about. These lenders will ask you how you are going to repay them.

A businessman will know this from his own experience when he calls his bank and asks to extend his overdraft for a short time. Their first question is, 'How long do you want the facility for?' They are not open ended. They want definite times and exactly how much money is being borrowed (an overdraft is borrowed money, of course).

And this is what they will ask you when you approach them with your bad credit history and ask for a loan. They will look at your cash flow. How much money is coming into your household, from whom and when. They will want to know that you, and your spouse, have regular incomes of a reasonable size. Certainly an average income. But regularity is important for these lenders. They would like to nail everything down so there is virtually no uncertainty. (And little risk!)

Repayment schedule

Then they will talk with you about the schedule for repayments. Again, they will want days and how much money you will repay on those days. Precise plans and intentions. Quickly you will find yourself being drawn into a contract to repay precise amounts and specified dates. It helps their planning, but also gives the bank an indication of your reliability and credit-worthiness.

Also, the lender will try to assess how likely it is that you will repay him. You may even hear a lender speaking exactly this thought out loud when you are negotiating a home loan. He will probably ask you what you do for a living, and then made a remark about how fortunate it was for people in your sector where salaries were high and work was readily available. (If you are fortunate enough to work in one of those sectors!) It will be his assessment of your ability to repay.

But as a backup, a lender will also want to know if you have got some other sources of income that you could call on if things turned and your regular earnings were cut off. If you could keep paying from your spouse's earnings, if you lost your job, for example.

How important is your bad credit history?

And there's another consideration. The lender will ask for your payment history on credit arrangements you currently have. In your case you have a bad credit history. But this examination is just part of the lender's inquiry, so don't be too nervous at this point. There are other factors that influence your credit-worthiness at the time of your talks with this lender.

So approach a lender when you need a bad credit loan. They may be frosty, but they will consider your ability to pay now and in the future, and not focus entirely on your past inability to pay.