Finding the right personal loan for you and your circumstances can be time-consuming and stressful, particularly if you need money in a hurry to cover an emergency.
We have collected the top five tips from industry experts that will help your personal loan application be accepted. We’ll look at:
- how much do you need to borrow?
- what type of loan do you need?
- what’s your credit report like?
- do you have the information to hand that a lender would need?
- do you choose a lender or a broker?
How much do you need to borrow?
Before starting your application for a payday or short-term loan, you need to figure out how much money you really need to borrow.
First, when you take out a personal loan, you already know that you will be charged interest on top of the amount of money that you have borrowed. So, by taking out a larger loan than you need, you’re adding more interest to the amount you’re paying back and you’re ultimately creating a larger debt for yourself.
Second, if you ask for a larger loan than you need, your application could have a higher risk of getting a “no” from a lender.
Every loan company has a set of criteria that a borrower’s financial situation should closely match before they are considered for a loan. This is called a “borrower profile” and let’s have a closer look what’s in one of these profiles.
There are three parts to a borrower profile. The first is how much you earn and how you earn it, the second is how much you spend, and the third is what have you been like in the past when repaying loans and just meeting your monthly outgoings in general.
How much you earn is very important. Some lenders will want to see £400 coming into your household, others want to see £600 – every short-term loan and payday loan company is different.
Equally, how you earn your money is a big factor. Your earnings can be your salary, your tax credits, and the benefits you receive. Some lenders are comfortable working with customers on benefits and others aren’t. Most are somewhere in the middle but many of them like your salary and your tax credits to be, say, 80% at least of the money that comes into your household.
A lender’s borrower profile will then consider how much you spend each month, how you spend it, and how much is left over at the end of the month.
When you’re filling in an application for a loan, you’ll typically be asked how much you spend a month on your rent or your mortgage, how much your council tax monthly payment is, and how much you spend on gas, electricity and water.
That’s not all though. They’ll want to know how much you spend on food, transport, clothes, entertainment, health and beauty, the kids, loan repayments, credit card repayments, and more. The reason they ask all of these questions is that they want to get as full a picture as possible about the obligations you have to meet every month.
Once a lender knows how much you spend and how much you earn, they’ll be able to work out your level of “disposable income” – that’s the money every month that is not committed to paying bills. How much disposable income you have a month is one of the most important features on any borrower profile. Some companies will be happy with £300 a month disposable income and others will want more.
This is why it’s so important to make sure you ask for only the money you need because if you ask for more, it might be the case that a lender is uncomfortable with offering you a loan that has £150 a month repayment if your disposable income is £300 but they’d be happy to consider a repayment of £130 a month. That extra bit of money you asked for could turn a “yes” into a “no”.
The last part of a borrower profile is to do with what’s on your credit report and we’ll cover that later in this article.
What loan type do you need?
There are two types of personal loans and it’s really important that you understand the difference between the two so that you make the right choice for you and your situation. There are “secured loans” and “unsecured loans”.
What are the 5 things that BestUnsecuredLoans thinks you need to know about secured loans?
- Most secured loans have looser credit requirements so even if you have a less than perfect credit history, you have a slightly higher chance of being accepted for a loan
- Your interest rate could be lower than an unsecured loan
- However, you will need to put down “collateral” or security which the lender can take from you if your permanently default on the loan.
- Pawnbrokers offer secured loans – they’ll take your jewellery or valuable household items as security. Logbook loan companies take your car as security on their loan. A secured home loan puts your house at risk. With all of these three types of secured loans, you are at risk of losing your security if you don’t keep up your repayments.
- If you don’t repay your loan in full, the lender will try to sell the security you offered as part of the loan agreement. However, if the value at sale of the item doesn’t cover the remaining cost of your loan, you will have lost your security and you will still need to pay the lender the balance.
What are the top 5 things that BestUnsecuredLoans thinks you need to know about secured loans?
- You don’t need to own a home (renting is fine), a car, or trade in your valuable personal possessions to get access to money you need
- You can pay back in one big instalment (a payday loan) or in up to 12 instalments (a short-term loan)
- Very few unsecured lenders impose early repayment penalties on their loans meaning that if you come into money, you can pay off your loan early and save a lot of money in interest
- Payday loans and short-term loans are very heavily regulated by the Financial Conduct Authority meaning that, if you start to experience troubles making repayments, your lender has to work with you and that they can add default fees of no more than £15 onto your account
- Payday loans and short-term loans can be approved in seconds and be paid directly into your bank account within a few hours. Secured loans generally take much longer to process.
What’s your credit report like?
Your credit report is like a financial scorecard that lending institutions and big businesses keep on you. It’s updated every month and, depending on the information that’s stored on it, you will receive a good, medium, or poor credit score.
It’s always a good idea to check your credit report before you make an application. The reason for that is that millions of UK citizens’ credit reports contain errors – some of them quite important errors that affect the possibility of a person getting a loan, a credit card, a mortgage, or even a mobile phone. Thankfully, each of the three credit reference agencies allow you to correct any mistakes you find on your credit report.
Do you have the information to hand that a lender would need?
You will need certain bits of information available when you apply for your loan so putting together a checklist can save you time by speeding the whole process along.
You’ll definitely need to be able to provide information on your income and your monthly expenditure– we saw why that was important earlier on in this article.
Other details you may need to provide include:
- who your employer is (and how long you’ve worked there)
- the line of business your employer is in
- the type of employment contract you’ve got
- your last three to five years’ address history
- your next pay date and the pay date after that
- your bank details including your debit card type and number
Do you choose a lender or a broker?
Every loan company and financial institute is differentand, in an ideal world, you should compare several lenders before committing to one.
However, when applying for loans, this can actually work against you if you don’t do it in the right way. Why is that? Because lenders generally do not like to see a lot of applications for loans from other companies in a short space of time on your credit report.
The chances are that most borrowers are just doing the sensible thing – they’re looking around for the best offer. After all, you wouldn’t accept the first quote you receive if you want to fit new windows in your home. You always haggle the salesmen down on the car showroom forecourt. Why should you be any different with loans?
There is another way – use a payday loan or short-term loan broker.
This is how a payday loan or short-term loan broker works. They have good, productive, ongoing relationships with lots of different lenders. Each lender tells a broker about their preferred borrower profile. When you submit your loan application with a broker, they compare the details you’ve sent them with each lender’s borrower profile they have on file. When they find a close or exact match, they propose you to that lender together with your credit report.
A broker might find one, three, or even ten lenders whose borrower profile you’re close to matching. Because each lender trusts their brokers, they also trust the fact that the credit report they send over is accurate and up to date. So, up to ten lenders may be considering your loan but none of them have to do a credit search on you – that’s a result.
Most brokers can deliver you quotes back from lenders within seconds and the money can be in your account within an hour (although it’s best to budget for up to 12 hours).
Apply for a loan that works for you through Best Unsecured Loans
Here are BestUnsecuredLoans, we have all the broker technology and the relationships with lenders needed to give you the very best chance of getting the cheapest loan for you with the right lender.
To start your application, please click here.