What to check before applying for a loan
Is a loan the right choice for you?
An unsecured personal loan can be used to fund all sorts of things, from home improvements to the wedding of your dreams. It’s a good idea to understand the pros and cons of loans before you apply, to make sure you can meet the monthly repayments and still manage your budget.
When exploring your lending options, loans and joint loans can help for those big ticket expenses such as a new kitchen or bathroom. If you’re eligible, lenders typically offer personal loans between £1,000- £25,000, although it’s possible to borrow more.
Personal Loan representative example:
Borrowing £10,000 over 60 months. Monthly repayment £193.47. Total amount payable £11,608.20. Representative 6.2% APR. Interest rate of 6.2% p.a. (fixed).
There are plenty of loan benefits. Here’s what to check before applying.
What will the loan repayments be?
How much you pay back each month on your loan will vary depending on three factors:
- How much you borrow
- How long the loan term is
- The interest rate you pay
As an example, if you borrowed £10,000 to upgrade your kitchen and repaid the loan over 5 years at a fixed annual interest rate of 6.2% and representative 6.2% APR, your monthly loan repayment would be £193.47. The total interest you pay over that period would be £1,608.20 with a total amount payable of £11,608.20.
You can use our personal loan calculator to work out what your loan repayments could look like.
Check the fees and charges
Most loan lending is flexible, giving you the option to extend the term, or top up the amount you borrow. But making changes might mean you pay additional charges, pay additional interest and your lender may complete a new credit check.
Some lenders may charge fees for late or missed loan repayments. These will also negatively impact your credit score. Setting up a budget planner can help you stay on top of loan repayments and manage your money.
If you’re worried about making your loan repayments, financial support is available.
Are there early repayment fees?
With personal and joint loans, you’ll pay back a set amount each month. If anything changes, you might want to pay back what you owe sooner than expected. For example, if you took out a personal loan to upgrade your boiler but then found a cheaper supplier, you could pay back the difference to avoid paying the interest.
You’ll need to talk to your loan provider to ask for an early settlement amount, which will include your outstanding balance and any fees due.
Check your credit score
To be eligible for a personal loan your credit history will be taken into account. Having a good credit score is the key to getting the best loan rates from your lender. If you’re applying for joint loans, both of your credit scores will be factored in so you’ll need to weigh up the pros and cons of joint loans.
Is the loan secured or unsecured?
Loans and joint loans can be either secured or unsecured. Secured lending means that you use another asset with a high value to act as collateral for the loan. This is usually your house.
Most personal loans like car loans, wedding loans or home improvement loans are unsecured lending, so you won’t need other valuable assets to borrow against.
How to apply for a loan
You can apply for a personal loan online once you’ve considered the pros and cons of loans and decided how much you want to borrow.
Compare the loan rates, interest and APR online to plan the right loan term.
The final step is to check your personal loan eligibility, before you apply.
Updated February 2024
