How can I improve my chances of getting a personal loan?
With personal loan rates looking very competitive right now – and close to all-time lows – you might be tempted to ask for one if you have big expenses on the horizon.
But while the overall rates may seem tempting, you should know that not everyone who applies will get these attractive rates. Some will be offered higher rates – and some will be rejected.
Here, we take a closer look at the steps you can take to improve your chances of successfully applying for a personal loan.
What is a personal loan? A loan can be a profitable way to borrow if, for example, you want to finance home renovations, a new car, a wedding, or a big vacation. It can also be a good option if you are looking to consolidate debts like credit cards, credit cards, and loans in one place with one lender, hopefully with a lower interest rate.
Typically, you can borrow between £ 5,000 and £ 15,000 over a period of one to seven years. Since the rate is fixed, you know exactly what you are paying each month. You also get a fixed repayment plan and a schedule to clear debt, which makes budgeting easier.
What rates can I expect?
At present, the lowest rates are available on amounts between £ 7,500 and £ 15,000. For example, you may be able to get a rate of less than 3% on a loan of £ 10,000 over five years.
Loans for amounts greater than £ 15,000 or less than £ 7,500 are likely to be more expensive.
You have to be careful opting for a very long repayment term. Monthly repayments will be lower, but you will pay interest for longer, thus increasing the overall cost of your loan.
How to apply for a personal loan
The best way to find the cheapest rates available is to use a comparison website like ours.
This will allow you to compare offers in one place. You can also check things like prepayment charges, which could add up to a month’s interest.
It is essential to be cautious when executing a request, as if you were using a scattergun approach – doing lots of credit searches in a short period of time – this will leave ‘fingerprints’ all over your credit report.
If a potential lender sees this, they may see it as a sign that you are in desperate need of credit, and they may decide not to lend you.
Use an eligibility checker
You can use our eligibility checker to find out which loans you are most likely to be accepted for before you officially apply.
This will help you do a “smooth search” and will not leave any traces on your credit report, thus improving your chances of making a successful claim.
Once you’ve found the right deal, you can apply online. After you apply, the money could be in your account in just a few days, or even potentially the same day.
What else can I do to improve my chances of success?
One of the main factors involved when a lender decides to accept you as a borrower is your credit score.
To be accepted for a personal loan at the lowest interest rates, you will normally need to have a healthy credit history and a high score. It shows that you are a trustworthy borrower.
In contrast, applicants with a lower score may be offered a higher rate than advertised – or may be turned down completely – because they are seen as less trustworthy.
In fact, in accordance with the regulations, lenders only have to give the rate announced to 51% of the candidates accepted. This is the reason why it is called “representative APR” (annual percentage rate).
Tips to help you increase your credit score:
If you want to improve your chances of being accepted for a personal loan, you need to take steps to make sure your score is in tip top shape. It will also help you access the best possible rates. So what can you do
First, get a copy of your credit report and go through it carefully. You can request a copy of your statutory report from one of the three major credit reference agencies: Experian, Equifax, and TransUnion. More detailed breakdowns of your score are available, but you will need to pay for them
Have all errors corrected. If you find something that was not your fault or that is incorrect in some way, ask your credit provider to remove any inaccuracies.
Check to see if your credit report links you to an ex-spouse, former roommate, or someone else you’re no longer connected with, perhaps through a joint loan or bank account. This person’s credit rating could hurt your rating. If the loan has been repaid, ask that a “notice of dissociation” be entered in your file.
Register on the electoral roll. Lenders and credit reference agencies use it to confirm your name and that you live where you say you live. It is seen as a sign of stability. If you move, remember to register at your new address
Make sure your address is up to date on all of your financial accounts. If you move, don’t forget to update your contact details
Be disciplined to pay all of your bills on time, including your rent or mortgage and utility bills. It’s a great way to show a lender you’re a good bet.
Avoid maximizing your credit balance. Try to keep your balances below 25% of your borrowing limit on each of your credit accounts
Always strive to make more than the minimum monthly payment on your credit cards. This will help demonstrate that you are not dependent on the loan. It will also help you deal with debt and save on interest.
Close any credit accounts you no longer use
Don’t apply for multiple credit accounts in a short period of time, as this could signal lenders that you are desperate for money.
If you have a declined request, find out why before you try again.