Applying for a loan seems like a scary process, especially if you’ve never applied before. Your mind may be swimming with questions: what type of loan do you go for? How much should you borrow? How long will it take to repay the loan? All of these are important and valid questions, but they’re easily answered. That’s why we’ve put together this short guide to show you how you can apply for a loan quickly and easily. How quickly, you ask? Well, some lender websites promise to process your application and provide you with funds in as little as ten minutes. It’s that easy!
This article covers the ins and outs, pros and cons, ups and downs of loan applications, and presents a handy 5-step guide to applying for a loan. Don’t be anxious. It’s a lot easier than it seems.
Why a Loan?
One of the first questions you’ll probably want to answer is, “why would I apply for a loan?”. You’ll therefore be looking into what loans actually do, how they work, and when somebody would apply for one.
Generally, you can apply for short term and longer-term loans. A short term loan is one that you repay over a period of up to 12 months, whereas a long term loan can be paid off over years and even decades. Short term loans are ‘quick fix’ solutions to cash emergencies, such as settling urgent bills or finding yourself short until payday. These can be quick, convenient, and easy – but as you’ll read later, you need to take care as you can be caught out with higher interest rates and tricky repayment situations.
However, long-term loans are beneficial due to their longer borrowing period and higher freedom in repayment. In addition, payments tend to be more spread out, so many feel that they are more manageable. However, it should come as no surprise that long term loans will result in a higher borrowing cost overall due to the increased amount of time over which repayment occurs, which corresponds to interest accumulating over the years.
Long-term loans should be primarily used to help chip away at more lasting debt issues than ‘quick fix’ payments.
Whichever loan you go for, you’ll have to pay a surplus in interest when you pay it back. This is why long term loans are generally costlier: more years, more interest. Interest rates vary between lenders and they can be looked at through ‘APR’ – annual percentage rates.
With that in mind, let’s get right down to it: the five simple steps to applying for a loan quickly.
Step 1: Define Your Needs
The very first thing you need to do is consider what you want this loan for. Will it be a short term loan where you could easily repay it before the year is up? Or will it be a heftier, long-lasting loan that you’ll need to pay off gradually?
Whilst short term loans are cheaper in that the reduced borrowing period allows for quicker and less costly repayment. They should generally be seen only as emergency measures where there are no other options. Be sure that you can’t hold off on impending purchases until payday.
There are also other tips and tricks you’ll need to watch out for. For example, ensure that whichever provider you opt for, they need to be FCA (Financial Conduct Authority) registered. In other words, that they’re legitimate and trustworthy. It’s also worth noting that the very act of applying for a loan, regardless of your outcome, can affect your credit score further down the line. Not to mention, with short term loans, if you have a rapid turnover rate of repayment, failure to make repayments can lead to losses on your overall credit score.
The final thing you’ll need to do is define your needs: be exactly clear about how much you need to borrow and how long you want to borrow it for. With this, you can use repayment and interest calculators available online to work out how much you’ll owe and how much time you’ll have to pay it. The arrangement of repayment and interest rates is at the discretion of yourself and your provider.
Step 2: Confirm Your Eligibility
Once you’ve settled that you definitely want to apply for a loan, you’ll need to make sure you’re eligible. First and foremost, most loan providers will conduct a credit and affordability check, so you need to make sure that everything looks clear in that regard before you proceed. In more basic terms, you also need to make sure that you have: a UK bank account, a form of employment, an email address, and a phone number.
Step 3: Pick Your Loan Type and Provider
Now, you’ve defined your loan terms, you’ve ensured you’re eligible to apply. What now? Pick the type of loan you’re after and where you’re going to get it from!
Choosing the Right Loan Type
This ties easily into step 1 and the defining of your wants and needs. For example, if you need to borrow a larger amount of money or need over a year to pay it off, you’ll want to opt for a long term loan. On the other hand, if you need a quick fix to last you for under a year, a short term loan is for you.
Neither type of loan is a one-size-fits-all, and you’ll actually find that there’s a lot of choice in different loans that you may want to apply for. For example, short term loans are ideal for both personal uses and new businesses. If you don’t qualify for traditional lines of credit as a new business, you may be able to secure a one-time loan to help with start-up costs.
Payday loans are the most common type of short term loan and are designed to lend an immediate amount of money with the idea that you’ll pay it back in full, with any outstanding interest, on your next payday. Interest rates tend to be higher on these types of loans- so make sure you read every detail. Significantly, the cost of payday loans is regulated by law, in accordance with the FCA (Financial Conduct Authority). These laws regulate the amount of interest and fees you can be charged. For example, if you take out a loan for 30 days, you will pay no more than £24 per £100 borrowed in fees/charges, and if you aren’t able to repay the loan on time, you can only be charged a fee £15 + outstanding interest.
However, you shouldn’t be applying for a payday loan if: you’re using it to pay off existing loans, you already have an outstanding payday loan, you’re unsure you can pay it back in time, and the loan isn’t for an absolute necessity.
To read more about different types of short term loans, click here.
If you think short term loans wouldn’t suit you, you’ll want to opt for a long term loan. On a repayment schedule of over a year, these loans generally offer lower interest rates/ APR. Still, they can easily result in a higher overall interest due to the increased lending period.
You’ll also need to consider several things with long term loans, such as the uncertainty of the future: if you choose a longer repayment plan, you could be paying your loan off in years to come. But, again, this means you may have difficulty planning for the future.
Additionally, if you want to pay your loan off early, you could face an early repayment fee – be cautious of this!
Lenders may also rely more heavily on your credit rating during the application to understand your financial circumstances and decide whether you can feasibly afford repayment in given time frames.
Choosing the Most Suitable Provider
Your next step is to pick the most suitable loan provider. Lots of providers offer very similar services, with some small differences. Most loan providers will have some criteria for the amount you want to borrow, the category of your loan, and how long you will pay it back over – check the fine print, especially APR rates. It’ll be down to you and the provider to agree on how much you’ll want to borrow.
The main thing to consider is whether your chosen provider offers the best deal for your circumstances, especially considering that loan applications can be detrimental to your credit score if care isn’t taken. For example, if you apply immediately for a short term loan and are subsequently denied, this could slightly reduce your credit score… and multiple rejections could harm it even further. So here are some key things you need to check when picking a provider:
– Can the payment schedule be changed?
– Is the interest rate fixed?
– Is there an option for instalments/ staggered payments?
It’s also key to check reviews and customer satisfaction… make sure you can check other people’s experiences. It may be worth picking your loan type first and then checking the lender’s suitability and reputability afterwards.
Thankfully, you don’t have to make all the big decisions yourself. There are lots of different tools on the internet designed to help you compare providers and their services. However, if you want to be as quick as possible to apply for a loan and still compare offers, you may want to consider a credit broker. Credit brokers speed up the process of loan applications by taking your application and submitting them to many lenders – they will know who to submit your applications to and where you’re likely to get accepted based on your credit… some places will even be lax with lower credit scores.
Be wary – you need to treat a credit broker with the same rigour as your provider… what are their customer reviews like? Do they also give you impartial advice? Are they reputable?
Step 4: Apply!
The most important step is perhaps the quickest and easiest. Once you’ve settled what loan you want, how long you’ll borrow for, who you’ll borrow from, and all the other relevant details, you can make your application.
Applications can be processed and funds given to you within the same day, provided you’ve applied on a working day. Once you’ve got approval and an offer, you’ll communicate with your lender directly. The process is tailored to you and designed to be speedy – you might have to speak to your lender on the phone or provide additional information for checks, but the process is generally hassle-free.
Once you’ve agreed to all relevant terms, you might even get a confirmation code texted to your mobile. Add this to your application online, and boom, you’re all done.
Step 5: Receive Your Money and Pay It Back Over Time
The very final step is to receive your loan. Once you have it, make sure you have your repayment details in mind and written clearly somewhere. You’ll need to have your repayment dates handy – you might even schedule a Direct Debit outgoing on a particular date. This allows you to ensure you’re making your loan repayments reliably and responsibly.
Failure to meet repayment dates consistently, or to pay off your loan altogether, will result in penalties, late fees, and higher interest rates.
With all of this in mind, we hope you’re equipped to go forward and decide if a loan is suited to you and to then decide which one. Finally, we hope this handy 5-step guide has been helpful!