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Step-By-Step Guide to Applying for a Personal Loan in the UK

Applying for a personal loan can be daunting, particularly with a poor credit score. Consolidation Expert breaks down the entire process and may even be able to offer alternatives.

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Are you wondering how to borrow loans in the UK? Applying for a personal loan is a serious financial commitment, and it is not the right choice for everyone. To decide whether a personal loan is right for you, and to find the best deal, everything from the interest rate to the repayment terms requires careful consideration.

At Consolidation Expert, we understand the importance of making informed decisions when it comes to your finances, and we’re here to help every step of the way. In this guide, we will provide you with all the necessary information to ensure a smooth borrowing experience. We will explain exactly what personal loans are, how they compare to other borrowing options and explore the eligibility criteria. We’ll then talk you through how the loan borrowing process works, step by step.

If you’re looking for an alternative to a personal loan, such as a specialist debt consolidation loan to repay multiple debts, we may be able to help you. At Consolidation Expert, our lenders may be able to provide a consolidation loan to you, even if you’ve been refused elsewhere. To see if you’re eligible, apply today with no negative impact on your credit score.

Representative 14.8% APR

We are a broker, not a lender.

Representative Example: Borrowing £15,000 over 60 months, repaying £355.28 per month, total repayable £21,316.57.

Total cost of credit £6,316.57.

Interest rate 14.8% (variable).

The lenders on our panel offer loans for 12-360 months, with rates from 4.7% APR to 42.6% APR.

The Representative Example is based on all loans paid out by lenders between 1st Jan 2022 and 31st Dec 2022.

Key Takeaways:

  • Taking out a personal loan in the UK requires careful consideration and a thorough understanding of the borrowing process.
  • There are various loan options available, and it's important to choose the one that best suits your financial needs.
  • Conducting research into different lenders and understanding their eligibility requirements can help ensure a smooth borrowing experience.
  • Before taking out a personal loan, it’s essential to understand the terms and conditions, including the loan term, interest rate, monthly repayments, and fees.
  • When applying for the loan, ensure the information you provide is accurate, otherwise your application may be denied. This may negatively impact your credit score.

What Is a Personal Loan?

A personal loan is a sum of money borrowed from a bank, credit union, or online lender that you pay back in monthly instalments, usually with interest. The repayment term is usually fixed, with typical terms ranging from lender to lender.

Personal loans are typically unsecured, meaning they don’t require collateral: you don’t have to pledge an asset (such as your home or car) to secure the loan. Instead, lenders rely on the borrower’s creditworthiness and financial situation to assess the risk of lending.

There are two main types of personal loans available in the UK:

  • For fixed-rate loans, the interest rate remains the same throughout the loan term, so you know how much you’ll need to repay every month. This is the more common type of unsecured personal loan in the UK.
  • For variable-rate loans, the interest rate may change throughout the loan term. This means your monthly payments may increase or decrease, usually in line with the Bank of England base rate.

While taking out a personal loan is not the right choice for everyone, it can be a suitable option for those who wish to borrow a fixed amount of money for a specific purpose–for example, to fund a large purchase (e.g., a wedding) or cover emergency home repairs. Personal loans can also be used for debt consolidation (i.e., to pay off multiple debts, so that you only have to make one monthly payment in the future).

It’s important to be aware that failing to repay a personal loan as agreed can impact your credit score and may result in legal action being taken against you.

Exploring Other Borrowing Options

When it comes to borrowing money, personal loans aren’t the only option. Understanding the different types of loans can help you make informed decisions and choose the best product for your personal financial needs. Here are some potential alternatives to personal loans, and how they compare:

  • Secured loans: these require collateral to secure the loan, such as a house or car. Lenders may offer lower interest rates and higher borrowing amounts for secured loans, but you risk losing your collateral if you stop making repayments.
  • Guarantor loans: these require a third party, known as a guarantor, to co-sign the loan agreement. Guarantor loans may be more accessible to those with poor credit. However, your guarantor must agree to repay the loan if you are unable to.
  • Credit cards: These allow ongoing borrowing up to a certain monthly limit, rather than a lump sum with a fixed repayment schedule. They typically have higher interest rates than personal loans, but may have low interest promotional offers.
  • Payday loans: These are short-term, high-cost loans often used to cover temporary cash shortfalls. They are typically for smaller amounts and shorter terms than personal loans, with much higher interest rates.

To find the best credit or loan option for you, consider your unique financial situation and needs, and compare loan terms and interest rates from different lenders.

Assessing Your Eligibility for a Personal Loan

Before applying for a personal loan, it’s crucial to assess whether you are eligible to borrow. Lenders typically have specific criteria for borrowers, and failure to meet these requirements can result in loan rejection, which may have a negative impact on your credit score.

Generally, to be able to borrow a loan, you must be at least 18 years old and a UK resident. Additionally, lenders are required to conduct proper assessments to ensure that the borrower can afford the loan, adhering to regulations set out by the Financial Conduct Authority (FCA).

The following factors may be considered when evaluating loan applications:

Factor Description
Age Though the legal minimum age to apply for a personal loan is 18, some lenders require borrowers to be over 21. There may also be an upper age limit, which may vary depending on the loan term.
Credit score A higher credit score generally indicates a lower risk for the lender. It reflects your credit history, including previous loans, credit cards, and whether you've paid them on time.
Bankruptcy and CCJs Most lenders will not approve your application if you have been declared bankrupt or issued with a county court judgment (CCJ) in the past six years.
Income Lenders typically look at your regular income to ensure that you have the means to repay the loan. You may need to provide proof of income and employment, such as recent payslips or tax returns.
Debt-to-income ratio (DTI) Your debt-to-income ratio is an indicator of your ability to manage debt. A high ratio may indicate that you are overextended and may struggle to make loan payments.
Reason for borrowing Lenders will consider the amount you wish to borrow and the purpose of the loan to assess whether it's reasonable and fits within their lending guidelines. For example, some lenders will not allow you to use a personal loan for a house deposit.

By assessing your loan borrowing eligibility, you can avoid wasting time and risking your credit on loan applications you may not qualify for. It also allows you to address potential issues before applying, such as improving your credit score or paying down debt.

How Does the Loan Borrowing Process Work?

Applying for a personal loan can seem like a daunting task, especially if you’ve never borrowed money before. However, having a thorough understanding of the loan borrowing process can make it easier. In this section, we will explain how to borrow loans step-by-step, from application to approval.

01. Determine Your Needs

First, decide how much money you need to borrow. This will largely depend upon why you need a personal loan, e.g., for a home improvement project, debt consolidation, or buying a car.

It’s important to borrow only what you can afford. As well as considering the amount you need, you should also figure out how much you can afford to repay each month. Be sure to consider how your financial situation may change in future.

It’s also a good idea to check your credit score, as this may impact the interest rate you’ll receive. You can check your credit score online with various credit reference agencies. If you notice any errors, it’s worth correcting them before applying for a loan.

02. Compare Lenders and Loan Options

Next, shop around with various banks, credit unions, and online lenders to find the best deal. Different lenders may have different types of personal loan available, each with different interest rates, fees and terms. Think about the loan term (how long you have to repay), the interest rate, and if there are any additional benefits or drawbacks.

Always check that the lender is FCA regulated. This will ensure that you have access to protections such as the Financial Ombudsman Service, which can help resolve disputes with your lender.

You should also consider the eligibility criteria. Aside from being over 18, many lenders have specific requirements regarding income, credit history, employment status, etc. To improve your chances of approval, take this into account when deciding which personal loan to apply for.

Top Tip:

It can sometimes be helpful to work with an FCA regulated loan broker to compare multiple loan options. It could save you time.

03. Read the Terms and Conditions Carefully

It is important to carefully read all terms and conditions before signing the loan agreement. This is essential to ensure that you understand what you’re committing to and that you aren’t faced with any unexpected fees or charges. Here are some of the key terms to look out for, and what they mean.

Term Definition
Principal The original amount of money borrowed.
Term The length of time you have to repay the loan.
Interest Rate The cost of borrowing the money is typically calculated as an annual percentage of the remaining balance.
Fixed / Variable A fixed interest rate stays the same, whereas a variable rate can change based on market conditions, impacting your monthly repayments.
APR The Annual Percentage Rate represents the total cost of borrowing the money over the course of a year, including interest and any additional fees.
Repayment Schedule This gives details of how much you need to pay and the frequency of payments (typically monthly).
Default Failing to meet the legal obligations of the loan, such as missing a payment.
DTI Debt-to-income ratio: a measure of your total monthly debt payments relative to your income, used to assess your ability to manage payments.
ERC Early repayment charge: a fee that may be charged if you pay off the loan before the end of the term.

Ensure you understand everything fully, including the repayment terms, potential fees and charges, what happens if you miss a payment, and whether you can pay off the loan early.

04. Submit Your Application

Once you have chosen the right personal loan for you, the application process can begin. You may be able to apply online, by phone, or in person.

You’ll typically need to give details about yourself, your financial situation, and the purpose of the loan. This may involve providing proof of identity (e.g. passport or driving licence), proof of address (e.g. a utility bill) and proof of income (e.g. payslips or tax returns). It’s important to double-check all details, as any inaccuracies may lead to delays, or your application being denied.

After submitting your application, the lender will perform a credit check and assess your ability to repay the loan. If pre-approved online, you may receive an immediate decision, but final approval might take a few days.

The lender might contact you to ask for further details or documents. Respond promptly to avoid delays.

05. Receive the Funds and Start Making Repayments

If your loan application is approved, you will receive a loan offer. It’s essential to review this offer carefully to make sure it meets your needs and expectations. Once you have signed the contract, the lender will then transfer the funds to your bank account.

Make sure you understand how and when to make repayments, and when the first payment is due. Consider setting up a direct debit or standing order to ensure you never miss a due date.

Finally, save all documentation related to the loan, including the contract, repayment schedule, and any communication with the lender. This information might be essential later on if you have questions or issues.

For Alternatives to Personal Loans, Apply with Consolidation Expert

Applying for a personal loan doesn’t have to be a daunting task. By following the step-by-step guide we have provided, you can make informed decisions and ensure a successful borrowing experience.

It is important to understand the loan borrowing process and the various options available to you before committing. Assessing your eligibility and preparing a strong loan application are key factors in securing a loan. Additionally, understanding the terms and conditions and working with FCA-compliant lenders is crucial to protecting your rights.

We encourage you to use the information provided in this guide to make responsible borrowing decisions and achieve your financial goals. If you’re looking for a debt consolidation loan in the UK, contact Consolidation Expert today for a free initial eligibility check.

Representative 14.8% APR

We are a broker, not a lender.

Representative Example: Borrowing £15,000 over 60 months, repaying £355.28 per month, total repayable £21,316.57.

Total cost of credit £6,316.57.

Interest rate 14.8% (variable).

The lenders on our panel offer loans for 12-360 months, with rates from 4.7% APR to 42.6% APR.

The Representative Example is based on all loans paid out by lenders between 1st Jan 2022 and 31st Dec 2022.

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