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Should you apply for a loan?

Before taking the plunge, consider whether applying for a loan is the right option for you. It’s worth asking yourself the following questions to help decide:

Do you need to borrow money? Work out the required amount and whether you need a loan. If you have some savings, it might be worth using them rather than borrowing funds.

How much can you afford to borrow? If you’ve decided that borrowing is the best option, look at your income and outgoings to determine how much you could realistically afford to put towards monthly loan repayments. Our loan repayment calculator can help you work out what instalments you have to pay for different loan amounts at various interest rates so you can choose an affordable option.

Could you borrow the funds elsewhere? If you don’t need to borrow a huge sum, it may be worth considering a 0% credit card or overdraft to get the necessary funds.Ìý

What’s your credit score? It’s a good idea to check your credit report and score before applying for a loan. If you have poor credit, it’s worth taking steps to improve it first. Otherwise, the provider could reject you or charge a higher interest rate.Ìý

Personal loan requirements

When you apply for a loan, you usually need to provide the following information: 

• Personal details, including your name and date of birth

• Bank details

• Current address and your address history for the past three years

• Employment details

Other eligibility criteria can vary depending on the lender, but will often include:

• Having an excellent credit score

• Being at least 18 years old (or 21 in some cases)

• Being a UK resident

• Being in full-time employment and meeting the minimum income requirement 

The loan application process

If you’re ready to apply for a loan, follow the steps below:

1. Compare loan rates

It’s important to compare a range of loans from different providers before applying. You ideally want to find a low-interest loan, but you should also check whether there are any fees and that you meet the eligibility criteria.

2. Use an eligibility checker

Many lenders now offer eligibility checkers that allow you to see how likely you are to be accepted for a particular loan. Because they use a soft credit check, this will not impact your credit score, which reduces the chances of a provider rejecting your application.

3. Get your documents ready 

Gather together proof of identity, such as a passport or photo driving licence, proof of address, such as a recent utility bill, and proof of income, such as recent payslips.

4. Fill in the application form

Once you’ve completed the above steps, you can make your application in full. You can often do this online, but you might also be able to do it at your local bank branch or over the phone.Ìý

You'll also be asked to provide personal and employment details, as well as how much you want to borrow and how long you need to pay it off. Long-term loans can reduce your monthly repayments but cost more in interest overall.

In addition, you’ll need to specify what you want to use the loan for – this might be to pay for home improvements, a wedding or debt consolidation, for example.

5. Wait for the lender’s decision

At this point, the lender will run a hard credit check that will show up on your credit record. It does this to determine your creditworthiness and whether it is happy to lend to you. Hard checks also help it decide how much to let you borrow and what interest rate to charge.Ìý

What happens after you apply for a loan?

If the lender accepts your application, you'll be sent a loan agreement online or by post. You need to sign this agreement. The lender will then transfer the funds directly to your bank account within a few hours or days.

You then need to start making loan repayments to your provider, usually starting the month after you get the loan.Ìý

How can you improve your chances of getting a loan?

You can take several steps to increase your chances of being accepted for a loan. These include:

1. Check your credit report and correct mistakes

You can check your credit report for free with any of the three main credit reference agencies (Experian, Equifax and TransUnion).Ìý

Go through your report carefully and check whether there are any errors. If there are, contact your credit provider or credit reference agency to get them corrected. This could be as simple as fixing your address.

2. Check whether you’re financially linked to someone else

You create financial associations when you take out a financial product, such as a current account or mortgage, with someone else. However, that person’s credit rating can affect your credit record and chances of getting a loan. So, if you’ve paid off the joint debt or closed the account, request that a ‘notice of disassociation’ be put on your record.

3. Pay down existing debts

Paying off existing debts will help lower your credit utilisation ratio – or the percentage of available credit you use. For example, if your total available credit was £3,000 and you used £1,500, your credit utilisation ratio would be 50%.

Ideally, you want to keep your credit utilisation rate at 25% or below. Lenders look more favourably at those with a lower credit utilisation rate, so paying off debts could help you get accepted for a loan.

4. Pay your bills on time

Paying household bills on time shows lenders that you are reliable. This can increase your chances of getting accepted for a loan as it suggests you’re more likely to repay the borrowed sum on time.

5. Space out applications

If a provider rejects your loan application, it’s best to try and find out why before applying again. It could be because you have financial links with someone with bad credit or because there was a mistake on your application form.

You can ask the lender why it turned you down. You should double-check your credit record too.

Keep in mind that making too many credit applications in a short period can raise concerns among lenders that you may not manage your finances responsibly. It’s best to space out applications by three to six months.

Find out more about what to do if your credit application is declined.Ìý

6. Consider a bad credit loan

You could consider applying for a bad credit loan if you have a low credit score. These are specifically designed for people with lower credit scores. However, interest rates will likely be higher.