Yahoo Finance How can I improve my chances of getting a personal loan?
With rates on personal loans looking very competitive right now – and close to all-time lows – you may be tempted to apply for one if you’ve got a hefty spend on the horizon.
But while headline rates can appear enticing, you need to be aware that not everyone who makes an application will get these attractive rates. Some will get offered higher rates – and some will get 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 cost-effective way of borrowing if, say, you want to fund home improvements, a new car, a wedding, or a big holiday. It can also be a good option if you are looking to consolidate debts such as credit cards, store cards and loans into 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 between one and seven years. As the rate is fixed, you know exactly what you’re paying each month. You also get a fixed repayment plan and a timescale to clear the debt, making it easy to budget.
What rates could 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% for a loan of £10,000 over five years.
Loans for amounts greater than £15,000 or smaller than £7,500 are likely to be more costly.
You need to be careful about opting for a very long repayment period. The monthly repayments will be lower, but you will be paying interest for longer, bumping up the overall cost of your loan.
How to apply for a personal loan
The best way to find the cheapest rates available is by using a comparison website such as ours.
This will allow you to compare deals in one place. You can also check for things such as early repayment fees, which could amount to a month’s interest.
It’s essential to tread carefully when carrying out an application, as if you carry out a scattergun approach –making lots of credit searches in a short space of time – this will leave ‘footprints’ all over your credit file.
If a potential lender sees this, they may view it as a sign that you are desperate for credit, and they may decide not to lend to you.
Make use of an eligibility checker
You can use our eligibility checker tool to find out which loans you are most likely to get accepted for before officially applying.
This will help you carry out a ‘soft search’ and won’t leave marks on your credit report, improving your chances of making a successful application.
Once you’ve found the right deal, you can apply online. Having applied, the cash could be in your account with just a matter of days, or potentially even the same day.
What else can I do to improve my chances of success?
One of the biggest factors at play when a lender is deciding whether to take you on as a borrower is your credit score.
To get accepted for a personal loan at the lowest rates of interest, you will normally need to have a clean credit record and high score. This demonstrates that you are a trustworthy borrower.
By contrast, applicants with a lower score may be offered a higher rate than advertised – or may be turned down altogether – as they are viewed as less trustworthy.
In fact, in line with the regulations, lenders only have to give the advertised rate to 51% of accepted applicants. This is the reason it is called the ‘representative APR’ (annual percentage rate).
Tips to help you boost your credit score:
If you want to improve your chances of getting accepted for a personal loan, you need to take steps to ensure your score is in tip top condition. This will also help you get access to the best possible rates available. So what can you do?
Start by getting a copy of your credit report, and go through it carefully. You can apply for a copy of your statutory report from one of the three main credit reference agencies: Experian, Equifax and TransUnion. More detailed breakdowns of your score are available, but you will have to pay for these
Get any errors corrected. If you find something that wasn’t your fault oris in some way incorrect, talk to your credit provider about getting any inaccuracies removed
Check if your credit file links you to an ex-partner, old flat-mate or someone else you’re no longer connected to, perhaps via a joint loan or bank account. That individual’s credit score could harm your rating. If the loan has been paid off, request that a ‘notice of disassociation’ is put on your record
Get registered on the electoral roll. Both lenders and credit reference agencies use this to confirm your name and that you live where you say you do. It is viewed 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 your financial accounts. If you move house, don’t forget to update your details
Be disciplined about paying all your bills on time, including your rent or mortgage and your utility bills. This is a great way to show a lender that you’re a good bet
Avoid maxing out 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 repayment on your credit cards. This will help demonstrate you are not reliant on borrowing. It will also help you tackle the debt and save on interest
Close any credit accounts you are no longer using
Don’t apply for multiple credit accounts in a short space of time as this might signal to lenders that you are desperate for the money
If you have an application turned down, find out why before trying again.
