How to Apply For a Small Personal Loan

Personal loans are one of the most versatile financial products. Unlike auto loans and mortgages, which are explicitly intended to purchase vehicles and properties, personal loans can solve a plethora of purposes. You can refurbish your home, consolidate your debts or finance your wedding with a personal loan.

The application process for a personal loan is pretty straightforward. Learn how to apply for this quick online loan. Read on to find out how much you can borrow with personal loans.

Understanding personal loans

Unsecured personal loans are short-term loans that can help you tide over a financial crunch. Unlike secured loans, these loans do not require you to declare collateral to acquire the loan. You can borrow any amount between £1,000 and £35,000, which would usually be paid off within 12 to 60 months.

The interest rates for personal loans are usually higher than that of secured loans. But how high they can get depends significantly on your credit score. You are more likely to qualify for competitive rates with an above-average credit score. The better your credit history, the lower will be the interest rate offered to you.

But your credit score isn’t the only parameter that lenders factor in when making a decision. Your credit rating and history, income, employment status, electoral registration, CCJs in your name are among the many factors on which a lender assesses an application. So, it may be worth putting more effort into improving your credit score before applying for a personal loan.

Personal loans can help you solve a variety of purposes. While a sizeable amount can help you finance significant ventures such as a wedding or a home improvement project, small personal loans can help you regulate your day-to-day cash flow during a financial crunch. These loans allow you to spread the cost of your venture into easy monthly installments, payable over a fixed period.

Regardless of the purpose of your loan, the key to making an informed borrowing decision is shopping around and comparing different personal loan offers. But don’t just restrict yourself to interest rates when comparing loan offers – try comparing the APRs. The APR or Annual Percentage Rate is an all-encompassing value that gives you the actual cost of borrowing. This includes the interest rate and all the additional charges (arrangement fee, early repayment fee, etc.) associated with an offer. A loan with a low-interest rate may have a higher APR. Therefore, APR comparison is a smarter way to weigh up loan offers.

What can a personal loan help me with?

Here’s what you can use a personal loan for:

• Organizing your debts with debt consolidation
• Catering to medical emergencies
• Building credit
• Funding home repairs or refurbishment projects
• Financing your wedding
• Paying for urgent car repairs
• Regulating daily cash flow
• Paying for moving costs
• Funding some urgent operating expenses of a business
• Financing a holiday

A personal loan can help you bridge some financial gaps that may have held you back, but it is vital to use it responsibly. It is best to avoid using the proceeds of a personal loan for discretionary expenses.

Before borrowing a loan, you must assess your affordability. Defaulting on an unsecured personal loan can be detrimental to your financial health. Failing to keep up with repayments can damage your credit score. In a severe case, the lender may take a legal course of action and get a CCJ issued in your name. Missed repayments and Court judgments show up on your credit report as negative items. If you have too many negative items too frequently, you may face a hard time securing credit in the future.

How do personal loan lenders assess my application?

The eligibility criteria for personal loans vary among different lenders. Here are the essential criteria that you should satisfy to be able to borrow a personal loan:

• You must be 18 years of age above.
• You must be a legal resident of the UK.
• You need to have an active UK bank account.

Here’s what personal loan lenders look at when they assess your application:

• Electoral registration
• Current and previous address
• Repayment failures, CCJs, bankruptcy, or debt solutions registered in your name (up to 6 years)
• Credit agreements and ongoing debts
• Current account details and utilization of the overdraft facility
• Income and employment status

Personal loans are a quick and convenient credit option. If you qualify for a personal loan, the lender may disburse the amount into your bank account within a few days. Plus, choosing an online lender or a broker to borrow your loan can be a handy way of borrowing since you can apply for it from the comfort of your home.

How much can I borrow with a short-term personal loan?

Typically, unsecured personal loans range from £1000 to £35,000, borrowed over 12-60 months. Although, how much you can borrow depends largely on your financial circumstances. Applying with a decent credit history, an above-average credit rating, proof of income and employment, and a low debt-to-income ratio may help you borrow a considerable amount.

Rusty’s credit history and low income, however, may restrict you from borrowing more significant amounts. Besides, you may not be able to qualify for offers with competitive interest rates.

Where can I get a personal loan in the UK?

There are several ways for you to obtain a personal loan. You may borrow through a broker or directly approach a lender for money. Here’s where you can find personal loans in the UK:

• High-street banks
• Building societies
• Credit unions
• Online lenders
• Dedicated lenders
• Secured loan providers
• Government grants or schemes
• Loan booking platforms such as LoanTube

Tips for finding your ideal personal loan online

Finding the right personal loan is a crucial step in the borrowing process. Here are some tips to help you sail smoothly through your borrowing journey:

• Decide a Loan Amount: Work out the amount that you need to borrow. Assess your income and expenses to decide how much you want to cover with a loan.

• Check your credit report: By now, we’ve established that your credit history is pivotal to your application. Checking your credit report at regular intervals helps you stay updated about the status of your credit score. Besides, regular scrutiny can help you identify any erroneous entries in your report. Getting an unidentified negative item rectified can help boost your score.

• Shop around for loan offers: Shopping around and comparing multiple offers allows you to explore the market. The broader your options, the better choices you make. Compare APRs and interest rates before finalizing an offer.

• Choose your loan term smartly: The loan term is the duration for which you want to borrow your loan. You should pay off the loan in its entirety within this term. You pay interest with each of your monthly installments. The longer the term, the greater overall interest you end up paying. Thus, it would be best if you chose this term wisely.

• Plan your repayments: Once you decide to borrow a loan, work up a repayment plan to ensure timely repayments. Alternatively, you can incorporate your loan repayments in your monthly budget to avoid any defaults.

• Ensure sufficient balance: Ensure that the account linked to your loan always has an adequate account balance before the repayments are due.

In conclusion

Personal loans are a convenient way of spreading the cost of your purchase into fixed monthly installments. But, like any other form of credit, you should use the money responsibly. Evaluating your affordability should be the first step when planning to take out a loan. Failing to keep up with the repayments, can gravely impact your credit score, hampering your chances of securing credit in the future. It is wise to have a contingency plan to ensure timely repayments, just in case, things went south.