Everyone makes mistakes. But money missteps, banking blunders and lending laments can be costly and take years to rectify. Britain is in the midst of economic turmoil with future job losses seemingly inevitable and less household income likely to affect millions as a result of the COVID-19 pandemic. People of all ages are going to […]
How to Apply for a Small Loan
If you’re considering applying for a short term loan, perhaps as a result of a financial emergency, then you might be wondering what is the best way to go about it. If you’ve had difficulties managing money in the past, or have been turned down for credit then you may be concerned that your application could be rejected. It’s easy to panic when a financial emergency strikes but reaching out for different potential sources of money in a scatter gun fashion is rarely the best approach. Small loans have some advantages over other forms of lending such as overdrafts and credit cards and can be one of the most practical ways to get your finances back on track.
However dire your current emergency, it’s important to relax and take a measured approach. There are no completely foolproof means to secure a loan, but there are things that you can do to increase the likelihood of finding the right solution.
Two Different Ways to Apply
There are two ways in which you can approach applying for a small loan. One is to consider a number of different lenders yourself, and then choose one to apply to directly. The other option is to use an authorised credit broker, which can save you time and money, as well as increasing the chances of your application being successful.
What If You Opt to Go Direct to the Lender?
If you borrow money directly from the lender you will have to choose a lender, then fill in an application form. It takes time to find the best lender for your circumstances, and studying interest rates can be time-consuming. Your application will include information about your personal circumstances, financial situation and details of your income and expenditure. The lender will then check your creditworthiness, and will try to establish if the loan you’re applying for is affordable and likely to be repaid. To do this they will access your credit report.
If your application is successful then the lender will provide you with a copy of the terms and conditions. Then you will need to confirm that you understand how much you are borrowing, the repayment terms, interest and other details. After you agree to these terms, the funds are released into your account.
If your application is unsuccessful however the application will be recorded on your credit report and could make it more difficult to secure credit in future. If you make a number of unsuccessful applications to different lenders this will be taken into consideration by lenders in the future. Rejected applications for credit on your report often act as a warning light to lenders.
So if your credit record is already less than perfect, it might be more prudent to use the services of a credit broker. They can increase your chances of finding the right lender for you, without the need for time-consuming research and the risk of multiple applications.
An Authorised Credit Broker Can Help You Secure a Loan
One way to vastly improve the chances of your loan application being successful is to apply through an authorised credit broker. A credit broker is a company that tries to match people with sources of finance that meet their requirements. Rather than submitting your application to just one lender, the credit broker will submit your application to a range of trusted lenders, with whom the credit broker has worked with over some time.
Isn’t It Easier to Apply Directly to the Lender?
Unless you have a clear loan product in mind and are confident you meet the lending criteria, it doesn’t always make sense to apply directly to the lender. There are a number of reasons why this is the case:
* Some lenders have a range of products and offers that are only available through credit brokers.
* A broker will explore a range of funding options and find a bespoke solution to your individual borrowing requirements. A loan secured through a broker is likely to be better tailored to your particular needs.
* Many brokers have particular areas of expertise, such as small loans.
So if you’ve decided that the best way to apply for a small loan is through a credit broker, the next step is to find a reputable one.
How to Find a Reputable Credit Broker
There are a number of myths about credit brokers which can put people off using their services. In reality, credit brokers are highly regulated and have to adhere to high professional standards. All brokers and lenders alike have to be regulated with the Financial Conduct Authority (FCA), and their details are recorded on the Financial Services Register [https://www.fca.org.uk/firms/financial-services-register]. You can check if the credit broker you are considering is registered with the FCA by searching the register. This will give you confidence that you’re not applying with an unregistered credit broker. You can also check the reputation of credit brokers on review sites such as TrustPilot.
FCA registered credit brokers can only deal with lenders who are also regulated by the FCA. Brokers are required by law to make it clear that they are brokers, not lenders. Any upfront fees need to be disclosed, as well as the terms of any payment. They must explain the details of any loan they suggest clearly, including the level of repayments, the interest that will be applied, and when repayments need to be made. They should outline the APR on any loan, as well as your rights to withdrawal. They should also disclose the details of any commission they receive from the lender.
Check Your Eligibility
Before you apply for a loan it’s important to check that you’re eligible. Different lenders can have widely different lending criteria, which means that while some lenders would be unlikely to lend to you, others might be able to offer you a competitive deal. Choosing the right one is crucial.
As well as the different lender by lender criteria there are criteria that every applicant has to meet if they are applying for a loan of less than £500.
You must be at least 18 years old, and a UK resident. You should be employed with a regular income, and have a UK bank account.
To ensure that you don’t waste time, and inadvertently increase your risk of having your application rejected, it makes sense to apply through a credit broker. They will thoroughly check that you meet the eligibility criteria of a particular lender before your application is submitted.
Completing a Small Loan Application Form
After you’ve explored alternative options, decided a small loan is the best approach for you and you’ve found a reputable credit broker it’s time to complete your application form. It’s always a good idea to take your time and read through the form before you begin. It can save you time having to correct or resubmit your application at a later date.
Before you start filling in your form it can be helpful to have some pieces of information at hand. As well as your personal details, such as your full name, address, previous addresses and telephone numbers, you will also be required to submit a range of information about your current financial circumstances.
You will be asked for details about your employment, including your employer’s contact information. You’ll need to provide the details of when in the month you’re paid and your average monthly income. You may also need to provide your mortgage or rental details, information about any other credit you have, and a range of other outgoings.
Lenders require this information to make a judgement about your ability to repay your loan. They need to be confident that the amount you are borrowing is comfortably within your means, and won’t increase your overall debt to unsustainable levels.
If your loan is approved it will normally be paid directly into your bank account, so your application will normally need to include your bank account number and sort code. These will also be used to set up a regular direct debit payment for loan repayments.
If you have all this information at hand before you begin your application it will speed up the whole process.
What Happens When Your Application Is Submitted?
Once your application is submitted to an authorised credit broker, they will thoroughly check it to ensure there are no errors or omissions. One of the most common reasons that loan applications are rejected has nothing to do with an individual’s financial circumstances. Instead, it’s because details on the form have been submitted incorrectly. As every loan application you make will feature on your credit report, it’s important to be sure that you’ve not inadvertently jeopardised your chances of making a successful application.
The credit broker will then use their knowledge of the small loan market to match you with the most appropriate lenders. At this stage, lenders might request additional information to help them make a proper judgement.
Although small loans can’t be guaranteed, there is a very high acceptance rate which is increased further when you apply through a credit broker. Your credit broker will not submit an application form with errors and neither will they apply to a lender who is unlikely to approve your application.
If one or more lenders approves your application, you will then receive a loan agreement. It’s important to read this thoroughly to ensure you’re fully aware of the financial implications should you choose to accept it. By signing the agreement you’re entering into a legal contract to repay the money as laid out in the agreement. You should also make sure that you’ve read the terms and conditions, so you understand what sanctions might apply if you miss a payment, or how you might pay off the loan earlier.
You Will Now Deal Directly With the Lender
At this stage, the credit broker’s role comes to an end and you will deal directly with the lender. You should make sure you know how your lender can be contacted, and how your account can be managed. Do they have an app or other online account facility?
Small Loans in Summary
Small loans can feel like lifesavers. They can help deal with a sudden financial emergency, such as a boiler breaking down or an unexpected liability landing on your doorstep. They can help you manage until your next payday, and get your finances back on track. Although the acceptance rates for small loan applications are high, they are by no means guaranteed.
An authorised credit broker can not only help improve your chances of your loan being successful, but they can also help you secure a better deal than you would otherwise have been offered. Many lenders are difficult to find, and some prefer to operate through credit brokers who take care of some of the initial screening for them. These lenders often have more competitive deals available than the big names.
By using a credit broker you could apply for a loan with a variety of lenders through one simple application. It saves you time as you don’t have to search through lenders trying to find the right one for you. The lenders who the credit broker chooses to send your application to will be tailored to meet your requirements, meaning there’s an increased likelihood of your application being successful.
If you decide to apply for a loan through a credit broker there will be less of a footprint on your credit report. If you opt instead to apply directly to a lender, there’s a chance your application will not be accepted, this will be entered on your credit report and you’ll have to begin the application process all over again.
Save Yourself Time and Increase Your Chances of Success
As an authorised credit broker we’ve successfully matched countless borrowers with lenders, finding them the most competitive deals and helping them get their finances back in track. If you’ve decided that a small loan is the best solution to your current financial emergency or sudden shortfall then we can help secure the funds you need.