Making sure your loan application is successful
Get the basics of your loan application right to increase your chances of having it approved
It’s useful to know how banks assess personal loan applications so you can be confident that you fit their criteria. Methods vary from lender to lender, but generally they use any or all of these three ways to decide whether to lend or not:
- Your past dealings with them
- The information you give on your application form
- Your credit rating
Bear in mind that some banks only lend money to their existing customers. You also need to be a UK resident, aged 18 or over and have had a current account for at least three months to apply for a loan.
Your credit rating
Your credit rating is based on financial data collected about you over the years on everything from credit cards to mobile phone contracts. It shows patterns of financial behaviour. Banks look at this behaviour to check if you are suitable for a personal loan. Banks then use a ‘credit score’ to predict your financial behaviour so they can decide if you’re an ideal customer for them. Your credit score tells the bank not only if you are suitable for a bank loan, but also the type of loan that you may be offered.
Check your credit rating regularly
It’s a good idea to check your credit records regularly to make sure they’re accurate. Although banks use credit scores in different ways, they are a key factor in deciding whether your loan application is successful.
Check the APR
The representative APR (Annual Percentage Rate) gives you an indication of the rate of interest you may pay on that particular loan, as this is the rate that most customers will pay for that loan. The APR is the interest rate that is charged over the term of your loan including any fees or additional charges, expressed as a single percentage figure. But remember, you’ll only see the true APR you’ll pay when you get a quote for your loan. The APR advertised is the representative APR, not specifically tailored to you. When you get a quote for a loan from some banks, it will leave what’s known as a credit footprint – even if you never took out the loan. Other banks however don’t include quotes on your credit file, so if you’re just shopping around, it could be a good idea to use them as it won’t impact on your credit score.
The application form
If you apply for a loan online with your existing bank, the bank will already hold a lot of information about you, so you don’t have to fill it all in again. This saves you time and makes sure there are no errors. You’ll have to take a few minutes to answer some questions and your reasons for wanting to take out the loan. These are a key part of the process.