Applying for a personal loan can seem relatively straightforward at first, but there is a lot to consider before clicking the submit button, so we need to ensure that we're considering all factors before committing to a loan.
Making a few simple checks beforehand will ensure that we're taking out a loan that is right for us, as well as ensuring that we're able to make the repayments on time without being left in financial difficulty.
Do You Really Need a Loan?
The first thing you should ascertain before making an application for a personal loan is whether you actually need to to take out a loan. When there's something we want urgently, it can make sense to apply for a loan, and if we're able to make repayments without worrying, then this is fine.
However, if you feel a loan is going to stretch your finances, it can be worth contemplating as to whether you really need to take out a loan right now, or wait a couple of months. Ensuring we're financially comfortable before applying for a loan will ensure that there are no nasty surprises when it comes to the due date.
How Much Should You Borrow?
When it comes to how much you should borrow, there's no right or wrong answer, it should simply be based on your current financial circumstances.
Depending on how much you borrow, the loan could be repaid within one year, or several. It's worth nothing that a long-term personal loan will probably incur more interest than one that we paid off in a smaller time frame.
As such, you should only borrow what you need, and ascertain as to whether you can maintain repayments for a set period of time. If not, then it may be worth reviewing how much you're applying for.
How Much Interest Will You Pay?
The amount of interest you pay on a personal loan will differ from person to person. If you have a good credit history and have made all your repayments on time in the past, then it's likely you will be in a position to scour the market for the perfect deal. However, if you have a blemished credit file and have defaulted on payments in the past, then the options could be fewer, and the interest will be more.
Reviewing your credit score can be advisable in this regard, as it will give you a better idea of what's available to you in relation to personal loans.
Many will see a " representative APR" when browsing the websites of some financial institutions. You shouldn't assume that this is the level of APR you will be paying, as the percentage was shown is merely an example, and the APR charged to you will be based on your application and financial background.
Finding the Best Deal
Regardless of your background, there's certainly no need to pay more than you need to, which is why so many people compare the financial market before making a final decision.
Whether you choose to carry out the research yourself, or use a comparison site, finding out what potential lenders are offering will give you a chance to review the different offers available from selected lenders before making an application.
What Happens If You Change Your Mind?
There can be times when you've completed your loan application, been accepted and the finds have been sent to your account, only for your circumstances to change.
If this happens to you, then it can be worth noting that you have 14 calendar days in which to cancel the loan should you no longer require it, which normally starts when your receive your acceptance correspondence. You should only pay interest on the time that you've been in the receipt of the funds. You can find out more about your rights to cancel in this handy guide.
What If You're Refused a Personal Loan, But You Don't Agree?
There will be times when applicants do everything expected of them, only for them to be refused a personal loan. For some, this can be inevitable and they accept the decision, whereas others may feel they've been treated unfairly.
When lenders make a decision, they often do so using your credit score, and the details you've provided, so if you feel the decision is unfair, you should contact the lender to discuss your application, and ensure all the relevant information has been given.
It should be noted that a lender will not be able to give you a definitive reason as to why you've been refused a loan, but if you feel that there has been an error when processing your application, then the lender should be in a position to review your circumstances.
Be Honest on Your Application
Many may assume that lender require a standard set of answers when it comes to applying for a personal loan, and may be tempted to give answers they think the lender wants. However, this will help neither you nor the lender, as the information being used will not reflect your actual circumstances. Another thing to consider is that it is actually unlawful to give false answers, and it's akin to fraud, so it's really not a route worth taking.
Each lender has to ensure they lend responsibility, and it can only do this if the questions they ask are answered truthfully. It also ensures that you are not putting yourself in financial hardship as a result of taking out the loan.
Carrying out these checks before applying for a loan can ensure that you can locate the best deal, while being fully aware of how long the loan will run for and how much needs to be repaid each month.
Try these tips on the do's and dont's when applying for a personal loan, or our latest article on personal loans for bad credit.