Thinking of applying for a personal loan? Well if you’ve never borrowed before, it may surprise you to learn that some lenders let you complete the whole application online.
But how simple is it to apply, and are there things you can do to increase your chances of being accepted? We take a look.
What will lenders ask?
When you apply for a personal loan, you’ll be asked for details like your full name, date of birth, address, employment status and income. Lenders may also ask your reason for applying, as well as how much you wish to borrow and for how long.
This information coupled with details from your credit history can influence a lender’s decision on whether to lend to you. Because of this, it’s important to check your credit history regularly.
When you apply to borrow, lenders will assess whether you pose a risk.
Let’s say you’ve previously missed payments and your credit history has been affected - you might be seen as a ‘risky’ borrower. As a result, your application could be rejected.
But each lender’s criteria is different. And being rejected by one lender doesn’t mean you’ll be turned away by them all. It might be the case that you’re accepted for a personal loan by another lender but with a higher interest rate than you saw advertised.
Work it out
Taking out a personal loan is a big financial responsibility. Being unable to afford your loan repayments can lead to negative footprints on your credit history that affect your ability to borrow in the future.
Before you apply, take a look at your finances and work out how much you have left each month after you’ve taken into account your mortgage/rent payments and all your other essential spending like utility bills and insurance.
Using a loan calculator can help you work this out and will give you an idea of how much you can realistically afford to put towards your loan repayments each month.
Keep in mind that the longer it takes for you to repay the loan, the more interest you’ll pay overall. However, affordable monthly repayments should be a priority when applying for a loan.
Weigh it up
So you’ve decided that your budget can comfortably accommodate your loan repayments. What’s the best way of applying?
Well, it’s important you don’t settle for the first loan you see. Weigh up what’s on offer – it may be that one loan provider is offering more competitive interest rates, for example.
Money saving websites and credit checking services like CreditMatcher are great places to start.
They offer you the flexibility to check whether you’re likely to be accepted for a personal loan, without it leaving a mark on your credit history. This soft search tool can also be found on some lenders’ websites.
You should avoid applying to several lenders at once. Multiple applications for a personal loan can go against you as lenders might see it as a sign of desperation.
It’s therefore a good idea to use a soft search tool to explore your options.
Do they need proof?
It’s likely that lenders will ask for certain documents as part of their application process. This might include proof of your address, employment contract, a copy of your recent wage slips and documents to confirm your identification.
Of course, what they ask for will depend on the lender’s unique criteria.
Is it right for me?
Before applying for a personal loan, you should think carefully about whether it’s the best option for you.
With this type of loan, the money you borrow is not secured against your property – like it is with a homeowner loan. Lenders therefore don’t have the security of your home should you fail to keep up with your repayments.
If lenders view you as an unreliable borrower, it may be that you’re accepted at a higher interest rate or, alternatively, offered a lower amount than you originally asked for.
Disclaimer: All information and links are correct at the time of publishing.