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The guide to your first personal loan

From the ‘what’ to the ’how much’ and APR, we cover everything you need to know about taking out your first personal loan. Make sure you’re fully equipped to apply and have the best chance of being approved.

5 min read
The guide to your first personal loan

What is a personal loan?

A personal loan is your agreed lump sum that will be deposited into your bank account that you will pay back in monthly repayments over a set period of time, known as the ‘loan term’. These instalments will include APR (Annual Percentage Rate), which is the cost you pay for borrowing the money (annually).

Will I be accepted?

This depends on multiple things from your credit score, your credit history, how much you want to borrow, and your current financial position. There are a range of lenders out there that serve different types of borrowers, so it’s likely there is a loan out there for you.

It’s a good idea to use soft search tools (also known as eligibility checkers) when you’re looking for the right loan for you. These will check if you’re likely to be approved, without affecting your credit score, so you can limit your applications to only lenders who are likely to accept you.

How much can I borrow?

This will depend on your personal circumstances. A lender will take into account your current income and residential status (homeowner, tenant, etc), other debts you may have and your credit history.

There are options for people with low income, poor credit, and other personal circumstances. At Ocean Finance, we arrange personal loans from £1,000 to £10,000 and consider all credit histories.

I have bad credit, can I still get a personal loan?

In short, yes, but you will be limited on the lenders that will offer you a loan. The loans that are offered to people with poor credit are known as bad credit loans and have a higher interest rate to offset the risk for the lender.

Another option if you have poor credit is to consider a guarantor loan. This is where a family member or friend co-signs the loan with you to act as a back-up if you can’t make your repayments. Your guarantor will be responsible for the debt if you are unable to pay, so this lowers the risk for the lender.

I have no credit history at all

Having no credit history or a ‘thin’ credit file doesn’t necessarily mean you can’t get a personal loan. Applying for your first-time personal loan with no credit will just limit the size of the loan options, but there are lenders out there that specialise in this.

Lenders tend to offer better deals to customers with spectacular credit files so if you have no credit history they will see you as a higher risk. If you want to lower this risk you might try to build up a credit history before applying for a loan, using a credit rebuilder card.

You can take some basic steps to improve your credit score, these include getting registered on the electoral roll and ensuring your information is correct with all three credit reference agencies (Equifax, TransUnion, and Experian). Take a look at your free credit report here.

I’m a student, can I get a loan?

Yes, as well as specific student loans funded by the government, you can also apply for a personal loan, if you can afford the repayments. As a student, it could be possible that you have little to no credit history, plus you may not have a regular income, so your options may end up limited.

Before you jump into getting your first-time personal loan as a student, consider whether you really need it. You may want that car or other expensive item but if you take out a loan and struggle to repay it this can have negative long-lasting consequences on your credit score.

How to apply for a personal loan

There’s a range of ways you can apply for your first-time personal loan, but here are some key steps:

  1. Understand your credit report - you can sign up for free to check your details, fix any mistakes and make sure it’s in the best condition
  2. Use loan calculators to figure out how much you want to borrow over how long - ensure you choose an amount where you can definitely keep up with the repayments
  3. Check your likelihood of acceptance - use eligibility checkers to see what you’re likely to be approved for online. Ours will give you a selection of loan options you’re eligible for
  4. Prepare your documents - you’ll need proof of ID (passport, driving licence etc), proof of address and proof of your income
  5. Apply online and get instant approval - complete an application online and find out if you’re accepted right away. Your cash will then be deposited to your bank account, often within the same day

Tips for repaying your loan

Once you have your personal loan, it’s important you keep up with your repayments - not doing so will result in additional fees and a negative impact to your credit score.

Here are some tips to help you repay your loan:

  • Make a budget and stick to it - ensure your loan payment is an important priority
  • Set up a direct debit to ensure you don’t accidentally miss any payments - it helps to have the money leave your account only a day or two after your payday
  • Pay off your debts before saving - you’re likely to end up paying more interest on your debt than you’ll accrue on savings
  • If you think you may struggle to make a payment inform your lender to discuss options straight away

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Intelligent Lending Ltd is a credit broker working with a panel of lenders.