5 things to know before you apply for personal loans

Written by

Tara Covell

Friday 2nd December 2022

A personal loan is a great way to fund a big purchase or exciting project as you’re able to spread the cost across manageable fixed monthly instalments.

Whether you’re renovating your home, starting to plan your dream wedding, buying a new car, or heading off on the holiday of a lifetime, a personal loan is a practical and versatile option to help you achieve your goals.

Getting a personal loan is still a big financial commitment, though, and isn’t something that you should go into without knowing the basics.

Here’s the information you need to help you understand the ins and outs of applying for a loan.

Understanding your credit report

Your lender will refer to your credit report when assessing your loan application. A healthy credit record could increase your chances of being accepted for a loan, and could give you access to more competitive rates.

Your credit history gives a lender an idea of how you’ll manage your finances in the future based on how you’ve managed money in the past. Lenders like to have reassurance you can handle debt responsibly.

Not every lender will want to take you on as a customer if they can see that you’ve made late or missed repayments. Even if they do, you’re likely to be offered a much higher APR (Annual Percentage Rate) than the headline rate due to being classed as a risk.

It's important to be aware that the rate your offered is not solely based on your credit history, though. Every lender has their own criteria and will also assess your personal and financial circumstances to help make a decision.

Will taking out a personal loan impact my credit score?

If you’re worried taking out a personal loan will negatively impact your credit score, you might be surprised to know a loan might help to improve it — but only if you pay it back in a timely manner. A personal loan could help to build up your credit history, proving to a lender you’re likely to pay a loan back in full and on time as you have done so successfully in the past.

Remember, having no credit history can be as harmful to your application as a bad one, as lenders will have no reassurance that you’re willing and able to repay according to your terms.

Stick to one application

If you’re trying to suss out which lender will give you the best APR, applying for multiple loans at the same time is likely to do more damage than good.

You might be used to comparing insurance quotes in this way but applying for several loans is completely different. Each application you make will be marked down as a hard search on your credit file which often raises red flags to lenders. In some cases, this could result in being declined for a personal loan you would have otherwise qualified for.

It’s a good idea to use an online loan eligibility checker to compare loans instead. You can then see which you’re most likely to be accepted for without impacting your credit score.

The difference between unsecured and secured lending

The two main types of loans available are unsecured and secured. Before applying for a loan, you should fully understand the difference between the two and which loan is likely to meet your financial needs.

Unsecured loans, more commonly known as personal loans, don’t require you to put up any form of collateral. Instead, lenders will assess your creditworthiness and paying capacity to determine how much you can borrow and at what rate of interest. If you default on your repayments, it will be recorded on your credit file. That will make it more expensive or even impossible to borrow in the future.

In comparison, a secured loan requires you to pledge an asset against the amount you wish to borrow such as your house or car to provide a form of security to the lender. The value of your assets will be taken into consideration when deciding how much you can borrow and is also likely to affect the interest rate you are given. If you fail to make repayments, then the lender can potentially sell your assets to clear your outstanding balance.

There are pros and cons to both types, explored in more detail in our guide on the differences between unsecured and secured loans.

It can cost less to borrow more

It might sound strange but borrowing more than you need can work out cheaper.

Many lenders have an APR-based tier system built round the amount you want to borrow, and the general rule of thumb tends to be “the larger the loan, the lower the interest rate”.

Use our loan calculator to get a quote and to calculate estimated monthly repayments.

You can consolidate your debt to make the interest you’re paying more manageable

If you have multiple debt spread out over different products like credit cards, store cards, or small loans, it could be beneficial to combine them together by taking out a single loan. You’ll be able to pay off various smaller debts using one loan, which may reduce the amount of interest you’re paying and help make it easier to manage your monthly outgoings.

Before you apply for a personal loan to consolidate your debt, start by working out the total amount that you owe as well as the amount of interest you’re paying. This will help you calculate how much you need to borrow to cover everything and decide if this is the best and most cost-effective option for you.

Applying for a personal loan with Novuna Personal Finance

If you’ve decided getting a personal loan is right for you, now you need to choose a lender. You’ll need to consider how much money you need and how long you’ll have to pay it back as your interest rate will be impacted by both the amount and term.

With Novuna Personal Finance, you can borrow between £1,000 and £35,000 with competitive rates from as low as 7.4% APR Representative (£7,500-£25,000). Depending on loan amount, you’ll be able to borrow over two to seven years when you take out a personal loan with us.

We offer some of the best rates available on the market, but it’s our award-winning customer service that truly sets us apart. There’s a reason why customers just like you have awarded us an average satisfaction score of 4.9/5! So, if you do decide getting a personal loan is the right choice for you, we hope you’ll go ahead with us.

Am I eligible to apply for a Novuna Personal Finance Loan?

To apply for a loan with us, you must:

  • Be aged 21 or over
  • Be a permanent UK resident — we’ll need to know your address history from the last three years
  • Be in permanent paid employment or retired with a pension — we’ll need to know your employment details, including annual income
  • Have a bank or building society account
  • Have a good credit history

If you’re eligible to apply, fill out our quick and simple online application form and receive a decision in minutes. We also make it easy to manage your account online or via our app — check your balance, make an extra payment, update your personal information and much more. If you have any questions or just prefer to speak to someone over the phone, simply get in touch with our loans team.

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