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How to apply for a loan

Navigating the world of loans: A comprehensive guide

Victoria Russell
Written by  Victoria Russell
Donna McConnell
Reviewed by  Donna McConnell
5 min read
Updated: 31 Jan 2024

Find out more about getting a loan, from choosing the right provider to how it affects your credit score

When life throws you a financial curve ball, a loan might be the answer to tackling those big-ticket expenses. Whether you're eyeing a shiny new car, dreaming of a home makeover, or planning the perfect wedding, loans can be a tool to make these dreams a reality. But let's not forget, loans are a significant financial commitment, especially considering you’ll be paying interest on your borrowing and personal loans can last a number of years. It’s important to think about the process of applying for a loan and what it’s going to cost you. 

Before you apply: What to consider 

Taking out a loan should never be a spur-of-the-moment decision. It's crucial to consider whether you truly need a loan or if saving up might be the more prudent path. Furthermore, every loan application leaves its footprint on your credit report, which lenders scrutinise when you come knocking. Advertised interest rates are tempting, but they're not one-size-fits-all; your personal financial situation and credit score have the final say. And watch out for those additional fees or charges that could sneak up on you. 

Woman using laptop smiling

Are you eligible for a loan in the UK? 

To get your hands on a loan in the UK, you've got to tick a few boxes: residency proof, being at least 18 years old, and a steady income to ensure those repayments don't become a headache. Lenders will take a magnifying glass to your outgoings, making sure the loan won't overburden your finances. A good credit score is like a golden ticket here, boosting your eligibility and possibly sweetening the loan terms. Keep in mind, lenders are as diverse as their criteria. 

The how-to of applying for a loan 

Ready to take the plunge? Start by deciding how much you need to borrow, and remember, borrowing more than necessary means more interest to pay. Decide how much you need to borrow: You could be after a smaller loan for emergency funds or need to borrow a larger loan for a bigger purchase, such as a car or home improvements. Try not to borrow more than you need as you’ll be paying interest on it. The lender is likely to ask you what you want the loan for when you apply. Next, ponder on the repayment period. Decide how long you need to pay it off: Are you able to pay the loan off quickly or would you prefer to spread out the cost over a few years? Just be mindful of interest added over time which could make your loan more expensive. Our loan calculator can help you work out how much a loan will cost – for different loan sizes and terms. 

MoneySuperMarket is your ally here, showing you which lenders might say 'yes' and saving you from the sting of rejection. Pick a lender that not only gives you the thumbs up but also offers a deal that won't make your wallet weep. Once you get the green light, the funds should make their way to your bank account without much fuss. 

Bad credit? Don't lose hope! 

A less-than-stellar credit score doesn't spell doom for your borrowing dreams. While it may narrow down your options, it's not the end of the road. Specialist lenders might just roll out the red carpet for you, though it might come with a higher interest rate and a not-so-generous borrowing limit. Need a hand comparing loans for bad credit? MoneySuperMarket has got your back, and will do it without leaving a mark on your credit score. Plus, the  credit monitor service is a free tool that can help you polish up that credit score for future financial ventures. 

What's your credit score? 

In the UK, your credit score could be the difference between a 'yes' and a 'no' when it comes to loans. While there's no magic number for loan approval, a higher score usually means better loan terms. With different credit agencies and scoring systems, it can get confusing. TransUnion, for instance, scores from 0 to 710, and you'll want to be north of 604 for a pat on the back. Dive into our guide on what is a good credit score to learn more. 

Loans and unemployment: Not impossible 

Think being unemployed puts loans out of reach? Think again. While you may face more restrictions and potentially higher interest rates, there are still avenues to explore, such as government loans for those on benefits. These are specific to certain costs and get repaid through deductions from your Universal Credit. Curious about your options? Learn about the possibility to apply for a loan if you are unemployed

How much can you borrow? 

How much cash a lender is willing to hand over depends on a cocktail of factors: your income, outgoings, credit score, the loan's purpose, and even your age. They'll dissect your financial life to determine how much you can handle without breaking the bank. 

Deciphering loan repayment terms 

The length of time you have to clear your debt is influenced by a myriad of factors: lender-specific criteria, the type of loan, security, the amount, your credit rating, and even government regulations. All these elements come into play when setting the repayment timeline. 

Boosting your odds of getting a loan 

Aim to present yourself as a borrowing superstar. Check your credit score, whittle down existing debts, and ensure you're punctual with current payments. Documentation of income and assets should be at your fingertips. Don't just settle for the first interest rate you see; shop around for the best interest rate and use MoneySuperMarket's loan calculator to gauge repayments. Borrowing within your means is always a wise move. 

How long will it take? 

Once you've crossed the approval finish line, the wait for the funds isn't long. Typically, you'll see the loan amount in your bank account within a few days, ready for whatever plans you've got in store. 

Starting your loan journey with MoneySuperMarket 

MoneySuperMarket streamlines the loan application process, showcasing your acceptance odds for an array of loans. We compare loans from a host of UK lenders, ensuring your credit score remains untarnished by the search. As a credit broker, our fee comes from the lenders, not from you, the customer. 

Navigating the loan landscape can be daunting, but with the right guidance and tools at your disposal, it doesn't have to be. Whether you're dealing with bad credit, seeking to improve your chances of approval, or simply shopping for the best deal, MoneySuperMarket is a valuable resource in your financial toolbox. Remember, loans are more than just an immediate influx of cash; they're a commitment that requires careful consideration and planning. With this comprehensive guide, you're now better equipped to make informed decisions and take control of your financial future. 

MoneySuperMarket is a credit broker – this means we’ll show you products offered by lenders. We never take a fee from customers for this broking service. Instead, we are usually paid a fee by the lenders – though the size of that payment doesn’t affect how we show products to customers.

Frequently asked questions

Why might I apply for a loan?

A loan can be a way to help you afford something sooner – to pay for a holiday or to consolidate existing debts, for example. 

You can use a loan for a range of purposes including: spreading the cost of a car, to help make home improvements, to buy a property more quickly (by using a bridging loan), to help pay for a wedding, to help fund your next holiday and to help consolidate existing debt to reduce the interest you pay. 

How much can I borrow?

How much you can borrow will vary by provider and your credit history – some lenders may be hesitant to lend you a large sum if you’ve recently struggled with debts. 

The typical loan amount can be anything from £1,000 to £15,000, depending on what you’re using the loan for. If you’re looking for a loan larger than £15,000, it’s possible you may need to look at secured loans rather than a personal loan. 

How long can I borrow for?

How long you can borrow for (the term of the loan) can make a big difference to your monthly repayments. The longer the term, the smaller your monthly repayments will be, but you’ll be paying off your loan for longer – andyou’ll pay more interest overall. Loans differ in length. You can usually choose your loan term. It could be as short as three months, or it could run to five years or longer. 

Which are the easiest loans to get in the UK?

Of all the various loan types available in the UK, payday loans are often considered the easiest to get due to their minimal qualifying requirements and quick turnaround. However, they tend to have the highest APRs too.

Pawn shop loans are also accessible because they are secured by the collateral you take to the pawn shop.

Approval for personal loans, car loans, and credit cards vary based on your credit history and income.

Student loans are treated as a long term loan that students will pay back slowly after they have graduated and are earning enough income. They are only accessible to students pursuing higher education.

Can I use this loan to pay off other debts?

You can use a loan to pay off other debts. This is known as debt consolidation.

Typically, it involves taking out a new loan with a lower rate of interest and using the new lump sum to pay off existing higher interest debts, such as credit cards. 

While you won’t necessarily reduce the total amount you owe immediately, your debt becomes less expensive and if structured correctly it should make monthly payments more manageable, reducing the chance of being charged for missed or late payments.

What are the common questions on a loan application form?

Loan application forms commonly ask for personal information like name, contact details, and address as well as employment details and monthly earnings. 

Additionally, forms typically request information about the purpose of the loan and how much you want to borrow. Questions about existing debts and financial assets such as whether you are a homeowner might also be included. 

Providing accurate and complete information on these questions is crucial for a successful loan application.

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