What you need to know before you apply for a loan

If you’re in the market for a loan, here are seven key points to keep in mind when you apply

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You can protect your credit score

Whether you get accepted for a loan or not depends mainly on your credit score. This score is based on your financial history and helps a lender decide if you are a reliable person to lend to. Find out more about your credit score.

If you get rejected for a loan it can have a negative impact on your credit score, so it helps to have an idea of where you stand before you apply - this is where MoneySuperMarket’s Eligibility Checker can be a valuable asset. All you need to do is input a few details such as your address, name, income and residential status. The checker will then show you loans that fit your needs, alongside the likelihood that you will be accepted. This minimises the chances of getting rejected and damaging your credit score.

You’ll be asked about your finances

When applying for a loan, you will be required to disclose your annual income. This can be slightly more difficult if you are self-employed or work to an irregular schedule. It helps to be clear on what you earn so you will have the best chance of securing that loan.

You’ll also be asked whether you own your home or not, and whether you have a mortgage. If you have a substantial asset such as bricks and mortar, lenders will feel more comfortable lending to you.

Whatever your accommodation circumstances, make sure you’re on the electoral roll - and keep it updated via your local council if you move. If you’re not on the roll, you’ll find it difficult to get a loan of any kind.

It’s a bad idea to apply for lots of deals in quick succession

If you apply for a spate of loans at once, your credit score could be affected negatively, which in turn impacts your ability to secure a loan.

This is because you’ll be giving off a whiff of financial desperation - especially if applications you make are unsuccessful

Using our eligibility checker gives you a more solid idea of what you can get approved for – so be selective and don’t panic.

A credit card might be sufficient

If you want to buy something for a relatively modest amount, you might want to think about getting a credit card instead of a loan.

With a credit card, you can repay the debt within a certain timeframe and avoid paying any interest. And if you don’t pay the full amount back within the interest-free period, you can switch it over to a balance transfer credit card and still avoid interest.

With a loan, you will inevitably need to pay interest, and you might not have as much flexibility. However, you can access lower rates of interest than for a credit card, which could make the difference between something being affordable and being out of reach. For example, loan rates start below 4% for amounts around £5,000, whereas credit cards typically charge around 20%. You can use our loans calculator to work out the total cost of a loan.

You might not get offered the rate you see

Banks only have to offer their advertised loan rate to a minimum of 51% of customers. This means that you might not get offered the rate you were thinking of when you apply. The better your credit score, the more likely you are to be offered the better rate.

The longer the term, the more interest you will pay

Getting a longer term to pay back your loan at a lower rate of interest might seem like an easy win, but it’s worth considering that you will end up paying more interest this way.

Getting all the facts before you make your decision is the best way to proceed, so make sure you know everything about the terms and your own financial situation before you make the commitment.

There might be hidden fees

When you commit to something as long-term as a loan, it’s vital that you know all the ins and outs of repayment. Hidden fees could potentially pop-up and if this is something you haven’t budgeted for, you could run into problems.

Unexpected costs could come in the form of administration fees or late payment fees. Knowing all the potential outcomes will ensure you know exactly where you stand throughout the terms of your loan repayment.

 

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