How to apply for a loan

Our step-by-step guide to making a loan application

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Thinking about taking out a loan? Make sure you are fully informed with our guide to making your application

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Applying for a loan

If you’re looking to take out a loan, we’ve put together a step-by-step guide to help you with your application. We’ll take you through the following:

  1. Considering whether you need a loan: Taking out a loan isn’t a decision to be taken lightly, so make sure you’ve considered whether it’s the best choice for you
  2. Choosing a type of loan: There are a number of different loans you can take out, though you may not qualify for all of them
  3. Checking your credit score: Whether or not you qualify for a loan depends largely on your credit file – so it’s always a good idea to keep up to date on it
  4. Compare and apply for the loan: Fill out the required information and send your application to the lender

1) What to consider before applying for a loan

Before begin your application, you should consider the following to make sure a loan is the right option for you:

  • Do I need the loan? Borrowing is never a light decision, so you should be absolutely sure you need the loan you’re applying for. It might be worth considering whether you can save the money yourself instead, unless the reason you need the loan is urgent, so you don’t have to pay interest on the amount you need
  • Can I afford the loan? Likewise consider your financial circumstances – while it’s impossible to predict the future, if you think you might have cashflow problems a loan might not be the best option for you. Remember that while a longer loan term lets you pay it back at a lower interest rate, you’ll still end up paying more overall
  • Have I been refused in the past? Applying for loans or credit leaves a mark on your credit report – if you’ve been refused a few times recently, you’d be better off trying to rebuild your credit score before trying again
  • Will I get the advertised rate? You might not get the interest rate you were offered, as lenders only have to offer their advertised rate to a minimum of 51% of their customers. The rate you get will depend on your own financial circumstances
  • Are there any fees or charges? It varies by lender and loan product, but you should be aware of any possible fees or charges you might face – for example, administration fees or late payment fees

Why do people take out loans?

Although what you do with the money once you get it is entirely up to you, people generally take out a loan for one of the following reasons:

Buying a car is the most popular reason for taking out a loan, with almost a third of all people choosing it as their purpose – followed by debts (28%) and home improvement (21%).

CarDebtsHome improvementWeddingHolidayOther0%5%10%15%20%25%30%35%31%28%21%15%2%2%Loan purposePercentage

Loan purpose Percentage
Car 31%
Debts 28%
Home improvement 21%
Wedding 15%
Holiday 2%
Other 2%

According to MoneySuperMarket data collected between January and March 2020, accurate as of April 2020

How much will I be able to borrow?

The amount you’ll be offered by your lender will depend largely on what you can afford to repay back – our loan calculator helps give you an idea of how much a loan will cost. Your lenders will make their decision on this using your credit report to gain a picture of your finances – but you’ll also need to be conscious of how much you can realistically afford to pay back.

How much you’ll need will depend on the reason for your loan. You should be sure of what you need the loan for and how much it will cost – for example, how much you’ll need to make the home improvements you want. Avoid borrowing more than you need so you know you’ll be able to make the repayments.

CarDebtsHome improvementWeddingHolidayOther£0£1,000£2,000£3,000£4,000£5,000£6,000£7,000£8,000£9,000£10,000£9,000£8,500£10,000£8,000£2,000£5,000Loan purposeAverage loan amount

Loan purpose Average loan amount
Car £9,000
Debts £8,500
Home improvement £10,000
Wedding £8,000
Holiday £2,000
Other £5,000

According to MoneySuperMarket data collected between January and March 2020, accurate as of April 2020

How long can I borrow for?

You’ll have the option of borrowing over one to 25 years – but keep in mind that while your monthly interest payments will be lower for longer loan terms, the overall interest you pay will be higher. If you can afford to make higher monthly payments to pay off the loan in a shorter space of time, it will end up being cheaper.

For example:

  • If you borrow £3,000 at 3.4% APR over three years, the total repayable amount would be £3,105.75 – meaning the loan have cost you £105.75
  • But if you borrow the same £3,000 at 3.4% APR over five years, the total amount would be £3,262,29 – so the loan will cost £262.29.

Loan termOne yearTwo yearsThree yearsFour yearsFive yearsSix yearsSeven yearsEight yearsNine yearsTen years£0£2,500£5,000£7,500£10,000£12,500£15,000£17,500£20,000Average loan amount

According to MoneySuperMarket data collected between January and March 2020, accurate as of April 2020

Can I get a loan with bad credit?

If you have a poor credit rating or a limited credit history you may still qualify for certain loans, however you can expect higher interest rates. You may also not be able to borrow as much without certain restrictions or conditions – such as having a guarantor to make your repayments if you can’t, or putting up assets as collateral.

2) What type of loan do I need?

Loans come in different forms for people in different circumstances – and the type(s) you’ll be most suited to will depend on factors such as your credit score and history. The general loans market offers the following options:

  • Unsecured loansUnsecured loans aren’t tied to any assets, and as such they’re usually only available to people with at least a fair credit rating
  • Secured loansSecured loans are tied to one of your assets as collateral – normally your home if you own it outright or have a mortgage – which acts as a security for the bank so they can get their money back if you can’t make your repayments. 
  • Guarantor loansGuarantor loans, like secured loans, are generally designed for people with poor or limited credit – you’ll take a loan out and if you can’t make your repayments, you’ll have an agreed-upon person to make them for you. This person is the guarantor, and they’ll usually be a family member or close friend who won’t mind the responsibility
  • Payday loansPayday loans should only ever be your last resort, as while they’re generally available to everyone – even if you have bad credit – they often come with huge interest rates. If you can’t repay them in time, you could find yourself in a difficult situation

3) How can I check my credit score

Your credit score is a major factor considered by lenders when deciding whether to accept your loan application, so it’s worthwhile checking on it before you apply. This way you know exactly where you stand, so if you need to improve your credit score you’ll have the chance to before filling out an application.

You’ll also be able to see if there are any errors on your report and subsequently correct them – errors on your report can lead to applications for loans and credit being rejected.

You can check your credit score for free with MoneySuperMarket’s credit monitor – we use a soft-search to show you your report, which means it won’t harm your credit score.

How does applying for a loan affect my credit score?

When you apply for a loan, or any type of credit, your lender will conduct a ‘hard search’ on your credit file. Whether or not you’re accepted, this still leaves a mark on your credit report – and too many of these marks can indicate to lenders that you’re in a financially difficult situation.

4) Compare loans with MoneySuperMarket

Finding the right loan for you is quick, easy and risk-free when you use our eligibility checker. Just tell us a little about yourself, your finances and the loan you need, and we’ll search the market for a list of deals that are right for you.

When you check your eligibility with MoneySuperMarket, you’ll be able to see how likely you are to be accepted if you apply – and as we only use a ‘soft search’ on your credit file, your credit rating won’t be affected. This way you can apply for your loan with confidence.

Apply for the loan

When you’ve found the loan you need and you’re completely sure about it, it’s time to fill out your application form with the lender. Just click through to their website to continue the process.

What information do I need to apply?

You’ll need the following information when you make your loan application, so be sure to have it to hand:

  • Personal details such as your name and address
  • Your bank details
  • Your current address and address history covering the last three years
  • Details about your incomings and outgoings
  • Information about your employment

What happens once I’ve applied?

Once you’ve completed your application and sent it off to the lender, this allows them to run a credit check on you to assess whether you’ll be able to pay it back. They’ll use their findings to make a decision, and if they accept your application they’ll also decide what interest rate you’ll get.

If you’ve been accepted the lender will send you the loan agreement – usually either electronically or by post – for you to sign and send back. When they get it back, you should have the money in your account within a few days.

If you’re ready to compare loans, head over to our eligibility checker to see what loans you’ll be guaranteed to get if you apply.

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