Net worth figures are everywhere. Celebrity profiles, rich lists and business pages all reduce people to a single number that seems to sum up how well they are doing in life. It is easy to assume that lenders think in the same way, and that the more you own, the easier it should be to borrow. For unsecured personal loans in the UK, that is rarely how it works. A lender isn’t really asking what you are worth on paper, but whether you can repay what you borrow comfortably, month after month, from the money that actually comes in. Understanding that difference explains why some people with impressive assets get turned down, whilst others with very little to their name are approved.
What a Net Worth Figure Leaves Out
Net worth is simply the value of everything you own minus everything you owe. That sounds like a complete picture, but much of what counts towards it is difficult to turn into cash quickly, such as the equity in your home, a pension pot, a car or a share in a business. With an unsecured loan, the lender has no claim over any of those things. Unlike a mortgage lender, they cannot take your house if you fall behind, so the assets that make your net worth look healthy offer them very little reassurance. What matters to them is the regular income that will be used to make each repayment, and how much of it is already spoken for.
You only have to look at the stories of high earners who have ended up in serious financial difficulty to see why. Someone can be wealthy on paper whilst having most of that wealth tied up in property or investments, with large regular commitments eating up whatever cash they have. The same thing happens on a much smaller scale in ordinary households. A homeowner with plenty of equity but a large mortgage payment, childcare costs and car finance may have far less breathing room each month than a renter on a modest salary with few commitments. On a net worth ranking the homeowner looks stronger, but to a lender weighing up affordability, the renter may well be the safer bet.
What Lenders Actually Look At
In the UK, the Financial Conduct Authority requires lenders to carry out a creditworthiness assessment before agreeing to lend. That assessment looks at two related questions, namely how likely you are to repay and whether you can afford to do so without real difficulty, without having to borrow more or fall behind on other bills. To answer them, lenders use the details on your application, information from the credit reference agencies and, increasingly, bank statements or Open Banking data that shows your actual income and spending. None of these sources says much about the value of your assets, because that isn’t where the repayments will come from.
The factors that tend to carry the most weight are fairly consistent. Lenders want to see a stable income and a realistic picture of your regular outgoings, from rent or mortgage payments to energy bills and existing credit commitments. They look at how much of your income already goes on debt repayments, and they study your credit history to see how you have handled borrowing before. Recent behaviour usually counts for more than older problems, so a missed payment three years ago is likely to matter less than one missed last month. Smaller details help too, such as being on the electoral roll at your current address and not having made lots of credit applications in a short space of time.
This is also why a poor credit history doesn’t automatically rule you out, even if your net worth is modest. Missed payments or a default will make approval from a mainstream bank harder, but there are lenders that specialise in working with people whose credit history is less than perfect, and lenders like Evlo tend to look closely at what you can afford today alongside your past record. That isn’t the same as easy credit. Borrowing with a weaker credit history usually comes at a higher interest rate, and affordability checks still apply, so a loan will only be offered if the repayments fit your budget. What it does show is that your present finances can count for a great deal.
The Numbers Worth Paying Attention To
If net worth isn’t the figure that matters most when you borrow, it helps to know which ones do. The most useful is your monthly surplus, the amount left over once your essential bills and existing commitments have been paid. If that figure is small or unpredictable, any new repayment is likely to put you under pressure, however valuable your assets might be. It is also worth checking your credit file with each of the three main agencies, Experian, Equifax and TransUnion, to make sure the information is accurate before a lender sees it. Many lenders offer an eligibility check that uses a soft search, which gives you an idea of your chances without affecting your credit file, and that can save you from applications that were never likely to succeed.
Net worth makes for entertaining headlines, and there is nothing wrong with keeping an eye on your own as a long-term measure of progress. It is a snapshot of what you own, though, not a measure of whether a particular loan is right for you. For lenders, and for you, the more useful question is how much your monthly budget can comfortably carry. Answering that honestly before you apply protects both your credit file and your finances, and it puts you in a far better position than any headline number ever could.
