How to apply for a personal loan

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A personal loan can be a useful way to cover one-time purchases or consolidate your debt into one fixed, manageable monthly repayment.

But, before making a Personal loan request, it is helpful to know what information you will need, how your financial situation will affect the loan offered to you, and what effect it might have on your credit score.

What is a personal loan?

Typically, a loan provider lends between £ 1,000 and £ 25,000, but existing customers with good credit may be able to borrow more.

Loan repayment terms typically vary from 12 months to five years, and in some cases seven years.

Interest rates and monthly repayments are almost always fixed.

Personal loans are also called unsecured loans because the money is not secured against the value of an asset, like your property or your car.

How does my credit score affect my application?

Loan providers generally offer the best interest rates to borrowers with the highest credit scores.

You can check your credit score and credit report online for free through a credit reporting agency such as Equifax, Experian, or TransUnion.

If you find that your credit score is low, you may want to improve before you apply. Advice includes registering on the voters list and paying off other debts.

Keep in mind that a denied loan application can reduce your chances of getting credit in the future.

What are the benefits of using a comparison website?

Shop for a loan on a comparison website means you can compare offers from a range of providers rather than, say, going directly to your bank, which is unlikely to offer the best deal.

Most comparison websites also offer an eligibility checker, making it easy for you to compare what different lenders might be offering for your situation without affecting your credit report.

Many personal loan providers now also offer this so-called “soft search” feature on their own websites, although going through them individually will take time.

What details do I need to apply for a loan?

When using an eligibility checker, you will need to share the following information:

  • Why do you want the loan (for example, home renovations, wedding or emergency)
  • How much do you want to borrow
  • The duration over which you want to repay the loan

Keep in mind that the loan amount will affect the Representative Annual Percentage Rate (APR), with loans between £ 7,500 and £ 15,000 being the cheapest.

Small loans, for example, under £ 3,000 can result in particularly high APRs. That’s why, especially for small loans, it makes sense to consider other options as well, like a 0% credit card or overdraft.

And, while a longer term means lower monthly repayments, you’ll likely pay more interest overall. In short, it is best to go for the shortest loan term that you can comfortably afford.

You will also need to enter some information about yourself, including your full name and address, your annual income and regular expenses, your professional status and your dependents.

This information is used to confirm your identity and financial stability, to determine which loans might be suitable.

How are the results ordered?

Once you’ve entered these details and clicked “search,” the results are usually listed first in the order of your eligibility, which will be expressed as a percentage. However, you can also change the filter to sort the list of loan results according to other criteria.

When can I find out what APR will be offered to me?

The eligibility checker’s soft search will display the key details of each of the loans offered to you, including the APR – the interest on your monthly repayments.

The APR incorporates all the fees charged on the loan, such as the arrangement fee. Having said that, additional fees on personal loans are rare.

The APR will be marked as “guaranteed” or “representative”. The latter means that the lender only has to offer it to 51% of successful applicants. The remaining 49% of applicants will likely end up paying more.

Will I still be accepted for the loan if the soft search says “yes”?

The soft search does not guarantee that you will be accepted for all the loans listed, but suggests that the provider has loaned money to others with a similar profile.

It is only if your eligibility is declared at 100% and the APR is marked as “guaranteed” that you will be definitively accepted for the loan with the indicated rate.

When will I receive the money?

Once you have chosen a loan based on the information presented, you will be directed to the lender’s website.

They will then perform a credit check on you, known as a “deep research”, to make sure you are eligible for the loan. Unlike a soft search, this hard search will be recorded on your credit score.

If successful, you will then need to sign and return a loan agreement, after which the money will be paid directly to your bank account, often the next business day.

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