Five things to do before a loan application

Chris Torney / 05 December 2016 ( 18 April 2017 )

How to avoid some of the most common loan application pitfalls.



Before you apply to borrow money through a personal loan, it is worth doing a bit of preparation. 

Here are five steps to take to ensure you pay the lowest interest rate and avoid some of the most common loan application pitfalls.

Step 1: Check your credit file

If you have any problems on your credit record, you risk being turned down by lenders or charged an eye-wateringly high rate of interest. So the first thing you need to do before you apply for a loan is check the state of your file.

This will show how much credit you currently have as well as whether you’ve missed any repayments or paid late over the past six years. If these or other details such as your current address are wrong, you need to put them right before you apply.

You can check your report by contacting the three main UK credit-reference agencies, Experian, Callcredit, and Equifax: by law, they all have to offer a basic copy of your report for £2 each.

How to check your credit report

Step 2: Work out what you can afford before you apply for a loan

You will repay your loan in fixed monthly amounts, typically over a period of one to five years. 

Draw up a budget to see what you can afford to repay every month: this can also help you to identify whether there are any areas where you can cut back.

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Step 3: Understand you may not get the advertised rate

If you see a loan listed at the top of a best-buy table or in marketing material that appears to be particularly cheap, bear in mind that you may not qualify for such a competitive deal.

Lenders are obliged to offer their advertised rates to just 51% of customers, but anyone who is deemed higher risk – perhaps due to a bad credit file – could be charged more.

Step 4: Shop around carefully

It is important therefore to compare loan deals from a number of providers in order to get the best rate. But if you do this by making one full application after another, it could damage your credit file: any future lender who sees you have made a large number of applications might think you have been rejected again and again – and this could count against you.

Instead, ensure that any rate checks you make are done through a lender’s “quick quote” or “soft search” process, which won’t leave a mark on your credit file.

How to protect your credit record

Step 5: Tinker with the amount and length of your loan

Larger loans usually have lower rates of interest – and rates can vary from provider to provider based on how long the loan runs for. When you are comparing rates of a loan, see if you could get a better deal by borrowing slightly more or by taking the loan out for a longer or shorter period.

But bear in mind that usually, the longer you borrow for, the more interest you will end up paying – even though your monthly repayments might be lower.

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The opinions expressed are those of the author and are not held by Saga unless specifically stated.

The material is for general information only and does not constitute investment, tax, legal, medical or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.