How to Get Accepted for a Loan in the UK
Applying for a loan is the only way to ever truly know if you will be accepted or not. The problem with this methodology is that it will leave a mark on your credit file that other lenders can see in the future. This mark can negatively affect your ability to get approved for credit in the future in some circumstances. For this reason it is not in your best interest to go willy nilly applying for loads of different loans all at once.
Everyone’s financial situation is different and there are rarely any guarantees that you will get accepted for a loan. However, following these basic steps can greatly increase your chances.
What do I Need to Apply for a Loan in the UK?
Not everyone can apply for lending products in the UK. Before you start your application, make sure you at least meet the following criteria:
- You must be over 18 years old
- You must be a registered UK resident
- It is usually a good idea to have a current account with your lender
How to Get Accepted for a Loan in the UK
The first step to increasing your chances for getting accepted for a loan is checking your credit file. The three main credit reference agencies in the UK (Experian, Equifax and TransUnion) collect and store financial data about you to help lenders decide whether you should be approved for loans. CRA’s typically retain financial records for everyone trailing 6 years back. Information over 6 years old becomes less relevant over time.
- Address and Clean Up Issues on your Credit File
Check your credit file for errors and take immediate action if you notice discrepancies. You can submit error disputes online, by phone or by post for all of the major credit reference agencies.
Clean up and repay any CCJ’s or IVA’s that may be bringing your credit score down.
In addition to making sure your file is free from errors, it’s important to work towards getting on top of debt repayments. In order to improve your credit utilisation ratio and show consistent payment history, make efforts to progress on paying down debts. Paying above the minimums can be a good idea whenever possible.
- Work to Boost your Income and Reduce your Debt
Take action to boost your income and reduce your debt before applying for a loan. Loan applications ask for proof of your annual income, but it’s important to note that you can add extra income legally earned from part-time jobs. While it’s easier said than done, starting a side hustle, getting an extra part time job or working towards getting a raise at your current job can help your chances for loan acceptance.
On the other hand, paying down your outstanding debts will also play a role. The purpose of these efforts is to improve your debt-to-income ratio which can show lenders that your current debt level is manageable and boost your case for acceptance.
- Only Ask For What You Need
This tip may seem straightforward, but it’s critical to be thoughtful about the amount of money you seek to borrow. Typically, you need to tell the lender what you plan to use the money for in the application process. If you request more money than needed for the intended purpose, lenders can view the application as having increased risk factors.
Asking for more money in a loan will also result in higher monthly repayments which can place a strain on your budget.
- Use a Cosigner for Better Chances of Acceptance
If you believe that your credit score or financial situation may be a roadblock to getting accepted for a loan, adding a cosigner with good credit to your application is an option. A cosigner is equally responsible for paying the balance of the loan which means that they will need to make repayments in the event that you are unable to. For this reason, it is important to find a cosigner who can afford to step in and help if something goes wrong such as losing a job or another negative life event occurs.
It’s important to have a candid conversation with your cosigner and make sure they are aware of the implications.
- Evaluate and Select the Right Lender
Selecting the right lender for your financial needs is another important step to getting accepted for a loan. While the major high street banks might seem like the best option, they are known to have a higher degree of scrutiny on loan applications. Expanding your loan search to borrow money from a credit union can be beneficial if you have a less than stellar credit history and would like some additional support in the borrowing process.
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