A loan is a great way to get access to money sooner. You can make that important purchase, pay bills, and create once-in-a-lifetime memories. What more? You can do it without paying up front. Instead, spread the cost of that holiday, car purchase, or home renovations in easy monthly instalments.
It is possible to accomplish all of this with the help of personal loans. It is a type of financial facility that helps you achieve any of your short and long-term life goals on time. The blog discusses personal loans and interest rates.
What are Personal loans?
A personal loan is an amount of money that you take from a direct lender/bank and repay it in easy and fixed monthly instalments. Personal loans are generally unsecured, meaning you don’t need to provide your assets as collateral for the loan. This is why the interest rates on the loan remain slightly competitive. However, you can still fetch better interest rates on personal loans by reducing monthly expenses and increasing income.
You may get up to £25000 for 7-8 years of repayment capacity. The fixed instalments help you set direct debits and monthly payment reminders. You can use the loan for various purposes, including paying credit card bills, kitchen renovation, bridging the cost, medical emergencies, and treatments.
What can you use a personal loan for?
According to the Compare the Market report, “33% of customers use a personal loan for car purchase.” Alternatively, you can use the loan for multiple purposes. However, it should be a valid and legal one. Here are other uses of personal loans to consider:
| Loan purpose | The percentage of individuals who use it | How does the loan help? |
| Buy a car/vehicle | 33% | Paying a large amount up front is challenging. Here, a personal loan helps split the costs into affordable payments. |
| Debt consolidation | 19-26% (According to Experian reports, 26% use a personal loan for debt consolidation | Fear of building debts and paying extra affects financial well-being. Here, a personal loan helps merge the costly debts into an affordable schedule. It reduces the interest and overall monthly payment costs. |
| Home improvements | 14-35% individuals consider a personal loan for home improvement | Savings prove insufficient to cover the costs. Moreover, emergency or unexpected expenses add to stress. Here personal loan fixes the situation with a swift payout. |
How does a personal loan work? What documents are required?
A personal loan works just like any other loan. It requires you to meet a specific eligibility criterion, which may vary according to the loan providers. However, the basics stay the same. You can qualify for personal loans in the UK if:
1. Eligibility criteria for personal loans
- Individuals aged 18 and above who a valid citizens of the country
- Must have fair credit or good to qualify for better rates
- Should have a valid income- (part-time/ full-time/ freelancing/ self-employed)
- Must have a valid bank account with a direct debit facility
- Should be able to afford monthly loan repayments without affecting the budget
2. Step-by-step process to get a personal loan:
- You can apply online/offline by providing basic details (name, contact number, email, purpose you need a loan)
- The loan provider offers personal loans with no credit check, which does not affect the credit score. It helps the person determine the approximate amount they may get.
- If eligible, you may get a representative APR, but only 51% get the advertised one. It is just the basic and not the final quote.
- The loan provider checks your credit score, income, and credit utilisation ratio, employment history, and credit history, and debts to provide a final amount and agreement. He asks for the documents.
- You get the cash the same day after loan approval.
- You can choose the repayment term according to your affordability and comfort. Repay the dues as per the loan agreement.
3. Documents required
The document requirements may vary slightly according to specific providers. Still, the basic things remain the same:
- Proof of Identity (driving license/passport/electoral roll)
- Proof of address
- Proof of income (regular/part-time/pensioner/ self-employed)
- Bank slips
How to get a personal loan with low APR and interest costs?
APR and interest rates are two different terms. APR is the Annual Percentage Rate or overall yearly cost on a personal loan. It also includes the interest costs. However, interest only consists of the interest costs charged over the year on the loan. The terms remain the same, but the APR may change if you skip the loan payments. A high APR loan means paying more over the loan term. Here is how to get low APR personal loans in the UK marketplace:
1. Borrow only an affordable amount
Individuals with bad credit history and low income must borrow less to keep the costs low. Borrowing a slightly low amount helps you qualify easily. Never borrow over than you can repay comfortably.
2. Improve your credit score
Try to clear some debts, improve your income, update your personal information, and get the latest credit report before applying. It helps you boost your credit rating and qualify quickly. Typically, individuals with a good credit score can secure low-interest personal loans in the UK marketplace. Here is what you can do to boost that quickly:
- Remove any associations with individuals with a credit score
- Pay some costly debts
- Re-optimise your monthly expenses
- Avoid taking credit cards/ or applying for one
Here is the general overview of what APR you can expect on personal loans, given the credit score, according to Experian:
| Credit score ( Experian range) | Expected APR | Implications | Tips |
| Excellent (961-999) | 5.9-10% | Can get a high amount, limited risk, and at a low interest rate. | Check options with low interest rates and low origination fees |
| Good (881-960) | 10-15% | Get a decent offer, competitive interest rates, rather than excellent scores, | The loan provider deducts the origination fee before you get the loan. So, make sure you get the full amount. |
| Fair (721-880) | 15-25% | It means the interest stays higher than average. You may expect to pay more fees. | Find the loan with the lowest APR and the monthly payment structure that you can afford. |
| Bad credit/poor (0-720) | 25%-40% | High risk of application rejection. If you get approved, the interest and other costs are high. | Add a co-borrower, guarantor, or collateral to get a low APR and interest rates. You may also get a high amount. |
Thus, you must compare the APR and improve your finances to get cheap personal loans online. Always check and rely on the actual APR you may get. It is different from the representative one.
3. Compare different quotes
Compare and get the best personal loans in the UK after checking your affordability. Identify the cheapest quote you can get, considering your financial circumstances. Reconfirm the additional costs (if any) before partnering with a loan provider. Also, check and compare the costs, such as missed payments, total interest to pay, and total amount payable.
4. Choose a shorter loan term
Options like small personal loans may be beneficial if you need a personal loan for emergencies. It helps you get debt-free immediately and avoid high APR or interest costs. The reason is that the payout and loan repayment terms are relatively short (12 months).
5. Consider alternatives also
Sometimes, unsecured personal loans don’t fit your needs well. Here, you can search for other options, such as secured loans, credit cards, and balance transfer payment options. For example, if you need a loan of over £25000 with bad credit, a secured loan would be best. You need to provide an asset valued at more than the amount you need.
Bottom line
These are some of the best ways to get top personal loan rates in the UK. Identify and improve your income and credit score, reduce monthly expenses, and pay off debts before applying. Compare the personal loan APRs to find the lowest ones that suit your needs. Identify the extras and additional costs that may affect the overall liabilities. Keeping costs low is the aim here.
Emma Anderson is a financial advisor at Quickloanslender who always believes in researching hard to know her clients’ financial problems. She takes the time to understand their financial wants and needs to write the blogs on them as the solutions. In her long 14 years of experience, she has written plenty of blogs on the financial and business sectors of the UK.
Emma Anderson has been recognised for her work in financial planning and her blogs are regularly published in the website of Quickloanslender. As far as her educational qualification is concerned, she has done Masters in Accounting and Finance, and done PG Diploma in Creative Writing.
