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Frequently Asked Questions on Personal Loans

Who Can Apply for a Personal Loan?

Each lender will have their own criteria of whom they would like to lend to, but generally applicants must be over the age 18 and be able to show they have suitable means to repay the loan, such as being in employment. Individual lenders may have a threshold as to what your basic earnings before tax need to be before they will consider you for a loan. Some loan providers will also specify any additional requirements such as having a good credit history.

How Can I Apply for a Personal Loan?

Before applying for a loan, you should always research the market, you can compare unsecured loans on SoSmart Money from £500 - £25,000. Once you have compared the market and found the loan that suits you, you can apply online. You will need to provide documentation to prove proof of eligibility, such as address, proof of age and earnings. Some lenders may require more, always check the terms and conditions before applying.

How Much Can I Borrow?

SoSmart Money can compare a number of different unsecuredloans from £500 to £25,000. Although if you are only looking for a small amount, such as below £2000 it might be more cost effective for you to look at the different credit cards available, which offer long periods of 0% interest.

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Is there a Fee for Arranging My Loan?

Most lenders don't apply an arrangement fee, but all lenders differ, once you have chosen the particular loan you would like to apply for, always read the small print for any additional fees.

What is a Representative APR and Will I Get That Rate?

The representative APR (annual percentage rate) is the interest rate given to the majority of customers for a particular amount. The Representative APR must reflect at least 51% of business expected to result from the advertisement or communication carrying it. The rate your chosen loan provider will offer your will depend on your financial situation and your credit score.

How is it Worked Out if I Will Be Approved or Not?

Once you have applied for a loan, your chosen lender will assess your application by the information you provide on your application form, such as wages, and information held on your credit reports, such as past loans, any defaulted payments on any financial bills (including your mobile phone). Points are assigned by the lender for each criterion; once all the points are added up; if they meet the minimum requirement of that lender you may be offered a loan. You can check your credit score online, the money advice service gives you help on how,  here.

What Happens Once My Loan Has Been Approved?

Once you have been approved, often lenders will send you the documentation of the loan terms and conditions to read over, if you agree to them, you'll be required to signed the documentation and send them back to the lender.

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Can I Change the Date on Which I Make the Repayments?

Loan repayments are subjective to the loan provider; some providers will allow you to arrange a start date for the loan, others will require you to pay the initial sum on the date requested by them and if you would like to change the date of repayment you would need to contact the provider and request a date change. This information can be asked of your loan provider before you sign for the loan. 

If I am Declined for One Loan Can I no Longer Apply for Another Loan?

If you have a loan application declined you are still able to apply for another loan. Some loan companies ask you to wait 6 months post being declined before applying with them again. Just because you didn't meet the requirements of one lender doesn't mean you won't meet the requirements of another. But the more loan applications you have recorded on your credit history the lower it will be. If you get declined by a loan provider, find out why first, maybe there is a mistake on your credit history or ask the lender, why they deemed you as too much of a risk for a loan.

How long will the Process Take until I Get the Full Loan Amount?

This will vary greatly from one lender to another; most lenders once you have been approved, signed the documents and sent them back will deposit the money into your bank account almost immediately. As to the initial process of being accepted this will vary on your credit score, and what the bank backlog is. Many lenders will give you a maximum turnaround time, it is best to ask this of your chosen lender once you decide to apply.

What Can I Use the Loan For?

Personal loans can be used for almost all legal, none business related activities, such as holidays, wedding, debt consolidation and home repairs.

Can I Change My Mind About the Loan Once I Have Been Accepted?

Most lenders will offer you a 14 day grace period once you have been accepted to change your mind about the loan.

Can I Change My Monthly Payments?

Personal loan terms can be up to 10 years, it is implausible to think people's circumstances won't change over that term. If your circumstances do change for the better you might be able to overpay your monthly loan amount. Some lenders do charge for that service, but others offer it for free, it is always best to check your loan's terms and conditions for additional fees. Some loan providers might be able to change your payments or give you a repayment 'break' if you are struggling to meet your monthly repayments. When your circumstances change you should always informed your loan provider so they can work out the best repayment method for you, don't just surprise changes on them.

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What Happens if I Want to Repay the Loan Early?

If you want to repay your loan early, check your loan's terms and conditions as some lenders charge you for the privilege of overpaying and thus paying off your loan early. Some lenders on the other hand have no penalty fees for repaying early. If you do decide to repay early ensure you tell your loan provider before doing so, as surprising a payment on them (even if it is for more money) won't always go down the way you would have hoped.

What is Credit Scoring and how is it Used?

Credit scoring are the points that are attributed to your credit history. Each person's score is personal to them and is based on how they have managed their finances in the past and presently. How much credit/debt they have plus how many loans applications have been attributed to their file.

When Do I Start Paying the Loan Back?

Some loan providers will offer a 'grace period' before you have to start paying the loan back which might be a good idea if you are taking out the loan to consolidate debts to help get yourself back on track. Others may ask you to pay the first instalment straight away or one month on. Always check your lenders terms and conditions for what a lender expects from you with regards to repayment.

What is the Difference between a Secured and a Personal Loan?

A secured loan is for someone who earns property; they can typically borrow more than someone can with a personal loan. The loan amount is secured against your property and thus is less risky for the lender but more risky for the borrower, because if the repayments are not kept up, the home the loan is secured against is at risk. Unsecured loans are not secured against your property and therefore present a higher risk to the lender if loan repayments are not met.

What Happens If I Can't Make the Monthly Repayments?

If you find you are struggling to meet your monthly repayments, speak to your lender before you default, often a lender can help you work through any repayment problems, don't wait until you default on the repayment to see what 'might' happen. You can also receive debt management advice for the Money Advice Service.

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The above post is intended to be informative but does not constitute advice - financial, legal or otherwise. Any opinions given are the author's own and do not necessarily reflect the views of SO Media or the Mitchell Farrar Group.

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