Am I eligible for a loan?

When applying for a loan, it’s important to check if you’re eligible for one first. Most lenders will run a “soft” credit check before you apply. This lets them assess whether it would be appropriate to lend to you and what you could be offered without affecting your credit score. Be wary of making a large number of applications in a short amount of time, however, as any “hard” searches on your credit file can be seen by other lenders and can reduce your credit score.

What are the criteria to apply for a loan?

Loan requirements often vary depending on the lender, but there are common criteria that you will generally need to fulfil to be eligible to borrow. For example, you’ll need to be a UK resident aged 18 or over and must be able to evidence your identity and address. You will also need to be able to pass a lender’s income and expenditure assessment, which varies from provider to provider.

The lender will also check your credit history to see how you’ve handled borrowing in the past. If your credit score is low, you may be turned down or offered a lesser amount or higher interest rate.

How can you improve your eligibility?

Making sure you keep on top of your payments on existing borrowing will often make a significant difference to your eligibility. Try to apply to lenders who are most likely to accept you. Some are happier than others to accept those with low credit scores, so avoid applying to lenders who have criteria that you are unlikely to meet.

Only apply for loans that you know you can afford. If there’s evidence from your credit history that this has been a problem in the past, lenders are more likely to conclude that this will be a problem in the future, too. You can also work on your credit score before applying by clearing any smaller debts you can afford to pay off.

How do repayments work?

Typically, you will repay the borrowed amount across agreed monthly payment dates. You will pay back the amount lent to you, as well as any interest and other fees that apply to the loan.

A short term loan enables you to pay the money back quicker – typically in instalments over 12 months or less. Longer-term borrowing can often allow you to borrow larger sums but will mean you are indebted to the lender, and will be paying any interest, for a lengthier period of time. It is important you take this into account and carefully consider the right option for you, making sure any repayments fit in with your budget.

Improving your credit score doesn’t happen overnight

Building your credit score can take time and depends on your financial habits and the cause of the low score. It’s important to be patient and to ensure that you make your repayments in full and on time.

*This is a collaborative post.