Questions to ask yourself when applying for a personal loan

Written by

Sophie Venner

Wednesday 11th January 2023

Before hitting the ‘apply now’ button for a new personal loan, it’s important to ask yourself a few questions to make sure a personal loan is the right option for you.

We’ve already covered the key things you need to know before getting a personal loan, such as avoiding making multiple personal loan applications and understanding the difference between unsecured and secured lending. But, when it comes down to the nitty gritty, what else should you consider before getting a loan?

Top questions you need to ask yourself before borrowing

1. How much money do I need?

To understand whether a personal loan is the best option for you, ask yourself how much money you need to borrow. You could opt for a small loan, starting from £1,000, or apply for up to £35,000 for bigger purchases such as a campervan or caravan.

Remember, how much money you’d like to borrow in an ideal world and the amount you’ll be able to get can be different things depending on your eligibility and creditworthiness. Apply for the money you need to achieve your goals and, depending on the outcome of your application, you may need to amend the figure.

2. How long do I want to be paying off my loan?

Once you’ve decided how much you need to borrow, start to think about how long you want to pay the loan back for. If you’re looking for a short-term solution and want to pay your loan back within two or three years, your monthly payments will probably be more expensive compared to spreading your loan over seven years. Be aware, though, that you’ll end up paying more interest over time if you opt for a longer loan term.

Everyone’s circumstances are different, so take a step back and weigh up the pros and cons of paying back your loan quickly versus lowering your monthly repayment but ultimately having a loan for longer.

You should also look into whether there are any hidden charges or fees for making extra payments or settling your loan early.

3. How much can I realistically pay back each month?

A personal loan is paid back in fixed-rate monthly instalments, so you need to make sure you can afford to pay the loan back in addition to all your other monthly outgoings.

If you’re wondering whether you can afford a personal loan, use our loan calculator to get an idea of monthly repayment costs for the amount you want to borrow. Deduct this from the money usually left in your account after all other regular bills and expenses have been paid, then consider whether the monthly repayment sum is viable. You should have enough money once everything has been paid off (including your estimated loan repayment) to respond to unexpected demands on your finances.

Think about your long-term plans, too, and whether you expect any other financial obligations to come up before you’ve repaid the loan back in full.

4. What do I need a personal loan for?

It's important to have a firm plan in place for the money you wish to borrow. A personal loan is a huge financial commitment, so it’s not advised to borrow money to spend on frivolous purchases.

You should always know in advance what project or purchase is being funded by the loan to help you make sure you’re applying for the right loan amount.

For example, if you’re looking to take out a car loan you should have an idea of what car you’re going to buy so you can tailor your loan amount accordingly. There’s simply no point in paying interest on money you didn’t need to borrow. But similarly, if you don’t borrow enough money, you might not be able to achieve your goals.

Whether you’re taking out a loan to fund home improvements or to bump up your budget for your wedding, with Novuna Personal Finance you can apply to borrow between £1,000 and £35,000 with rates from 7.4% APR Representative (£7,500-£25,000).

5. What personal loan lender should I choose?

You should try to find a reputable, FCA regulated lender that allows you to borrow the amount of money you need and pay it back over your preferred length of time. However, the APR offered should also impact your decision. For example, you may wish to avoid payday lenders entirely to make sure you don’t end up paying inflated extreme interest rates.

Here at Novuna Personal Finance, we’re well-known for putting our customers first. There’s a reason we’ve been voted the UK’s Best Personal Loan Provider for the last 10 years, with an average satisfaction score of 4.9 out of 5 from customers just like you. There’s more to choosing a personal loan provider than who’ll offer up the lowest APR. Consider which lender will provide you with the best level of customer service and look out for additional benefits such as the option to manage your account online or via an app (which is something we offer to all customers).

6. How much will borrowing cost?

Personal loan providers don’t lend money for free so it’s important to ask yourself how much you’re prepared to pay in interest for the convenience of receiving the cash you need for your project or big purchase upfront.

Interest is added to your total repayment amount, which can be essentially viewed as the cost of borrowing money. You may also see this displayed as APR (Annual Percentage Rate), which is the interest costs plus any additional charges or fees. In our case, as we don’t charge any additional fees, the APR and interest rate is the same. You can find out more about the difference between interest rate and APR here.

At least 51% of customers are given the Representative APR displayed on our online loan calculator, and this can be used to give you an idea of how much you’ll be expected to pay back in total once you’ve taken out a loan. To get a personalised rate, though, you’ll need to fill out a full application form.

7. Am I eligible to apply for a personal loan?

You should check to make sure you’re eligible before applying to borrow money. To apply for a loan with Novuna Personal Finance, you must be aged 21 or over, be a permanent UK resident (and have been living in the UK for at least 3 years), be in permanent paid employment or retired with a pension, have a bank or building society account and have a good credit history. If you’re not able to meet those eligibility requirements, your application won’t be accepted and yet the application will still be marked down as a hard search on your credit file which could impact the decision of other lenders.

You must earn greater than £10,000 annually to apply for a personal loan with Novuna Personal Finance, and you will need to tell us your employment status. Our lending decision is based on your financial circumstances (which does include your employment details and annual income, but also takes into account your current debts), your credit score, your loan amount and term.