Applying for a loan can be a daunting process, and one that is filled with jargon, varying APR rates and questions about your financial position. It is not surprising that people can get flustered during the application process, especially as each application leaves a footprint on your credit file, regardless of whether or not you have been accepted. This easy checklist will guide you through the questions to ask yourself before making the application. This is intended to give you the best chance of success, with the least damage to your credit rating.
Step 1 – check your credit rating
The first thing to do before applying for a loan is to check your credit score. This is found on your credit report, which can be requested from Experian, Equifax or CallCredit. The report lists details of your credit history to determine whether or not you are deemed ‘creditworthy’ by potential lenders. If you have repaid debt on time, and in full, then your credit score will be high, but missed repayments, CCJs or other signs you have struggled to manage your finances will result in a low score. Don’t forget to make sure you are signed to the electoral register at your home address as this too makes an impact on your credit rating.
Step 2 – consider other forms of lending
Your choice of lending method should be determined by the amount you need to borrow, and the term over which it is repaid. For example, if a large amount of credit were needed for home improvements, then a further advance on your first charge mortgage, a remortgage or a second charge mortgage may be more suitable than a credit card. Alternatively, if a small cash injection is required to get through a short term of high spending, such as Christmas, then an increased overdraft, or a credit card with a 0% interest period may be the cheaper option.
Step 3 – shop around
Price comparison websites are a great research tool in finding the ideal loan. They directly compare the APR across a number of lenders to present the most favourable deal. It is worth remembering though that the lenders will advertise their most favourable APR, which are usually reserved only for those with an excellent credit score. Some sites offer a pre-application eligibility checker, which allows you to gauge whether or not you are likely to be accepted without leaving a damaging footprint on your credit file.
Step 4 – check that you can afford the repayments
It is imperative that before accepting a loan, you are sure that the repayments can be made. Failure to repay debt on time will damage your credit rating, lead to charges and can even put your home at risk should the lending be secured. If you feel as though you are struggling to manage your finances, then contact the Money Advice Service who can direct you to sources of free debt advice. However tempting, never borrow more than you can afford to repay, even if the loan application is accepted.