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Gone are the days of tedious paperwork and repeated trips to your bank to apply for a loan. The last few years have seen a significant shift from people applying directly to high street banks to shopping online to find a loan provider that suits their needs.
Consumers have found that the rise in price comparison websites has made it quick and easy to compare loan providers, all from the comfort of their own homes. Many of these companies have developed mobile-friendly versions of their sites, which means that the whole process can easily be completed on a laptop, tablet or even a smartphone.
You might already know exactly which bank or financial institution you want to apply to, which makes things straightforward. However, if you aren’t yet sure, or if you’re shopping around for the best deal, you might find an overwhelming number of results from a quick online search. Using a price comparison website is a useful way to narrow down the options, based on the criteria such as how much you want to borrow, and how long you want to repay the loan for.
Many providers will have a series of screening questions to help show how much you may be able to apply for. It is important that you answer questions truthfully – as banks will have the ability to check your financial history, by means of a credit check. Although lenders will not provide a final offer until they have conducted a credit check, price comparison websites can help you get an idea of what a bank may be willing to lend you.
Some of the websites you will come across are those belonging to ‘direct lenders’. These will include names that you might be familiar with – such as high street banks, as well as some smaller or online-only providers. Using an online price comparison website can provide insight into the sort of loan you may be eligible for from a range of direct lenders.
However, there are other websites known as ‘online brokers’ you may come across. There is a key difference here, which is that online brokers are not able to provide finance directly. They act as a middleman, by pushing your details out to direct lenders, and coordinating the responses you receive. They may work on commission.
All loan applications will be slightly different. But there are some basic details which all lenders will require.
Contact details: All lenders will ask for your basic contact details, as they serve as identifying information to allow the lender to make a credit report check.
Bank account details: You will be asked to supply your current bank account details, which will allow the loan to be paid into this account if your application is accepted.
Wage and existing financial commitments: You will be expected to provide details of all your forms of income. The lender will also want to understand the details of your ongoing financial commitments, such as a mortgage or credit card debt. It is important that you are honest about these – falsifying records may make it seem like you can get a bigger loan, but this comes with a number of risks. The credit provider may detect this during a final credit check, and cancel their offer. Otherwise, you may also find yourself with a loan that you are unable to afford to repay, which can have serious negative consequences.
Before any company formally agrees to provide you with a loan, they will conduct credit checks. This provides reassurance to the lender that you will be able to repay the loan. It includes factors such as whether you have been subject to any bankruptcies, county court judgements (CCJs) or if you have defaulted on previous loans.
Every time a company conducts a full search against your credit report, it leaves a record on your file. If you have several of these, particularly in a very short space of time, it may have a negative impact on your credit score – making you less attractive to future lenders. This is because of the suggestion that you may have been looking to take out a lot of credit in a short time period, which is likely to be a red flag to some credit providers.
However, this isn’t helpful for responsible consumers who are simply looking to shop around and get a number of quotes before coming to a decision. This is why many providers now offer a ‘soft check’ option.
A soft credit check is an initial look at your credit report, which will give a lender an idea of whether you are likely to be a suitable candidate for a loan. This type of credit check does not leave a permanent record on your credit report. It will also allow the lender to provide you with a decision in principle.
A decision in principle (which might also be described as an approval in principle/agreement in principle) is a formal written estimate supplied by a lender, which gives an indication of how much money you will be eligible to borrow.
Crucially, this means that you can still shop around, and make other initial enquiries with other loan providers. As long as they are only conducting soft credit checks, it will not have any negative impact on your credit score.
Once you have settled on a loan, there is one final thing to bear in mind. How many times have you subscribed to something, or downloaded an update and been asked to read a terms and conditions document? And how many times have you skimmed it, and just ticked the box? Whilst this might be fine for some things, it’s definitely not a good idea when it comes to finance. The terms and conditions documents may be long, but it’s worth making sure you properly read through everything to ensure that you aren’t missing any important information.
Particularly important is to understand the penalties that may be imposed if you miss a payment. No matter how stable your income is at the moment, it is important to bear in mind that all of us can fall victim to unexpected circumstances. If you found yourself unable to meet the loan repayments, what kind of penalty charges could you expect? This comes back to our earlier point about honesty in an application – if you’ve filled the application in truthfully, you are minimising the risk that you will end up with a loan that is more expensive than you can realistically manage.