Things To Consider When Applying For A Personal Loan

November 18, 2020

Once you have decided that you would like to take out a loan, you need to submit an application with a lender. Many quick personal loans are available online these days, so applying can be quick and easy, providing you are prepared and have all your information ready. 

Taking the time and effort necessary to make a great job of the personal loan application process first time can save you a lot of disappointment further down the line. Many personal loan applications are rejected simply because the applicant cannot provide enough information. Therefore, making sure you consider all the data a lender will require before approving an application will increase the chance of your application being approved.

What you need to consider BEFORE applying

Is this type of loan right for me?

It goes without saying that you should be confident that the type of loan you are applying for is right for your needs before you go anywhere near an application form. You can establish the type of loan that’s right for you by considering the following:

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  • How much you need to borrow
  • How long you need to repay the loan
  • How much you can afford to repay each month
  • Whether you have a strong or weak credit score
  • Whether you are a homeowner
  • Whether you want a secured or unsecured loan
  • Whether you want an online loan or a bank loan
  • How much you’re willing to pay in interest
  • Whether you would want to repay early without penalty

Which lender do I want to apply with?

Finding a lender that appeals to you is harder than it seems. This is partly because there are so many lenders available these days, making it difficult to distinguish between them. Here are some tips on how to choose between lenders:

  • Look at total amount repayable (TAP) rather than APR
  • Look at the interest rate charged
  • Don’t forget to find out if the lender applies extra charges for arrangement or early repayment
  • Find out what happens if you miss a payment
  • Find out how much you might be charged in penalties if you pay late
  • Research a lender’s reputation
  • Look into how much they typically lend and the usual terms over which repayment is requested
  • Check their eligibility requirements 

Am I eligible? 

Checking a lender’s eligibility requirements and comparing your situation to their ideal customer, will help you when applying for a personal loan. Applying for loans and being rejected will harm your credit score so it’s a good idea to try to avoid applying until you are confident that you are eligible. Some lenders will allow you to undergo a ‘soft application’, which could give you a really good idea about whether you are eligible without involving a full credit check.

If this is not offered, there are a few things you can do to try to establish whether you are eligible, such as:

  • Finding out your credit score

Your credit score is a number that represents how much of a risk you are to lenders. Credit scores are generally from 0-999 and the higher your number, the safer bet you are for lenders. You can find out what your credit score is for free from various credit agencies, such as Experian. If your score is not good, you might want to work on improving it before you apply for a personal loan

Why might your credit score be low?

You can have a low credit score because you’ve never taken out much credit before. If you’ve never had a loan, a phone contract, a mortgage or a credit card of any type, you may have a very low credit score simply because you have no credit history. This is easily remedied by taking out a small amount of credit and handling it responsibly over a period of time to improve your credit score.

  • Finding out if you meet minimum criteria

Each lender will have a list of minimum eligibility criteria on their site – often in their FAQs section. These criteria will often pertain to your nationality and age, but could include other factors like your employment status or your homeowner status.

Get your house in order

Finally, if you are confident that you meet the lending criteria set out by your preferred lender, it’s time to get your personal and financial information together. You are likely to be asked to provide information about your income, your outgoings, your employment and the amount you can afford to repay each month. Consider questions like ‘how much do you want to borrow in total’ and ‘how many installments do you need to repay?’

Make sure you have details of your income, your outgoings, including any other debts you are responsible for repaying, and your employment status will help when filling in the application. In addition, if the lender needs extra information from you for any reason, you’ll have that to hand, ready to send off or scan, helping you get your hands on the cash you need sooner.

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