Checklist - applying for a loan
People choose to borrow funds in the form of a loan for many reasons. Often to help contribute towards large purchases, such as buying a car or paying for a wedding. Whatever the reason, we’ve put together a checklist to help you get started.
Is a loan the right choice?
Remember, there are other means of obtaining credit – for example through an overdraft or credit card. A loan will allow you to borrow a lump sum and pay this back over an agreed period at a fixed rate of interest.
How much to borrow?
Work out how much you can afford to borrow. If you’d like some help take a look at our guide, can I afford a loan? which includes some questions to ask yourself and some tips to help you work this out.
Understanding rates (APR)
The annual percentage rate or APR allows you to compare loans from different providers. The lower the APR the less interest you’ll pay.
Bear in mind that the actual rate offered to you will depend on your personal circumstances, credit history and other related factors, but at least 51% of customers who receive a loan will get it at the advertised rate.
A loans calculator will help you work out the total cost of a loan when you take into account both the lump sum and the interest.
Understanding and checking credit scores
A credit score is used by lenders to access the likelihood of a person's ability to repay their debts. This will influence whether your loan application is successful and the rate which you are offered.
You can check your credit rating before you apply for a loan to give you a better idea of what to expect and to correct any errors in your records. Applying and being refused multiple loans in a short amount of time can signal financial trouble, so it’s best to only apply for loans you believe you'll qualify for, based on your individual circumstances.
You don’t have to take out a loan with a bank or building society where you’re already a customer. You can shop around and find the right one for you.
As well as comparing the APR, look out for any initial set-up costs and penalties for missed or late payments as well as early repayment options.
Once you’ve chosen a loan and you’re ready to complete the application make sure you have the following information to hand:
- Your residential address for the past three years
- Your annual income before tax
- Details of all your monthly incomings and outgoings
- Your employer's name and address
- Your Nectar card number, if you have one