How to apply for a personal loan

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Personal loans can be a useful way to cover one-time purchases or to consolidate your loans into one fixed and manageable monthly repayment.

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But, before applying for a personal loan, it is helpful to know what information you will need, how your financial situation will affect the loan you are granted, and how it may affect your credit score.

What is Personal Loan?

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

Loan repayment terms usually range from 12 months to five years and in some cases up to seven years.

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Interest rates and monthly payments are almost always fixed.

Personal loans are also known as unsecured loans, as the amount is not secured against the value of an asset, such as your property or car.

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How does my credit score affect my application?

Loan providers usually 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 make corrections before applying. Suggestions include registering in the voter list and paying off other debts.

The search for credit applications appears on your credit report. Multiple searches in quick succession (perhaps as a result of being turned down earlier) are a red flag for lenders and can hamper your chances of getting credit in the future.

What are the benefits of using a comparison website?

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

Most comparison websites also provide an eligibility checker, so you can easily cross-reference what different lenders can offer for your circumstances without affecting your credit report.

What details do I need to apply for the loan?

You will need to share the following information when using Eligibility Checker:

  • Who you want the loan for (for example, home improvement, wedding or emergency)
  • how much do you want to borrow
  • The period over which you wish to repay the loan

Keep in mind that the size of the loan will affect the representative annual percentage rate (APR), with loans between £7,500 and £15,000 being the cheapest.

Small loans, say, under £3,000 can carry a particularly high APR. Therefore, especially for smaller borrowings, it makes sense to consider other options, such as a 0% credit card or overdraft.

And, while a longer term will mean lower monthly payments, you’ll probably pay more interest overall. In short, it is best to opt for the shortest loan tenure that you can comfortably afford.

You will need to enter certain details about yourself, including your full name and address, annual income and regular outgoings, employment status, and any dependents.

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

How are the results ordered?

Once you have input these details and hit ‘Search’, the results are usually listed first in your order of merit, which will be expressed as a percentage. However, you can change the filter to sort the list of loan results by other criteria as well.

Compare Personal Loans from Top Lenders

Check your eligibility for multiple types of loans, without affecting your credit score.

Compare Loans

When will I know what APR will be offered to me?

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

The APR covers any fees levied on the loan, such as arrangement fees. That said, additional charges personal loan are rare.

The APR will be marked as ‘Guaranteed’ or ‘Representative’. The latter means that the lender only needs to offer it to 51% of successful applicants. Another 49% of applicants will likely pay more.

Will I always be accepted for the loan if the soft search says ‘yes’?

SoftSearch doesn’t guarantee that you’ll be accepted for all of the loans listed, but it does suggest that the provider has lent money to others with a similar profile.

Only if your eligibility is stated as 100%, and the APR is marked as ‘Guaranteed’, will you be definitely accepted for the loan with the rate shown.

When will I get the money?

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

It will then run a credit check on you, known as a ‘hard search’, to ascertain your eligibility for the loan. Unlike a soft search, this hard search will be recorded on your credit score.

If successful, you will be required to sign a loan agreement and return, after which the cash will be paid directly into your bank account, often by the next business day.

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