An introduction to loans
From time to time, many of us can find ourselves struggling with money and looking for financial help. Even if you’re in a good place financially, you might still find it tricky putting some money aside for a family holiday or some home improvements, for example.
A loan can be a quick and handy way of getting some financial help but it’s a decision that shouldn’t be taken lightly. If you’ve worked out a budget and are comfortable with the financial commitments and the repayments, a loan might be what you want.
Compare loans with us and we’ll show you our best rates based on your circumstances and help find the right deal for you.
What are the different types of loans?
Pros and cons of a loan
Before you apply for a loan
What you'll need to apply
- The amount you'd like to borrow
- The purpose of your loan e.g. holiday, one-off purchase
- How long you’d like the loan to run for (the term)
- Your personal details
- Your UK address and any previous addresses you’ve lived at over the last 4 years
- Your annual income and general outgoings
Understanding credit reports and credit checks
A credit report provides information on how you’ve used credit in the past. This includes whether or not you’ve paid bills on time and how much debt you have. These reports are produced by credit agencies like Experian and Equifax. They get your credit information from a range of sources, including lenders.
When you apply for credit like a credit card, a mortgage, a student loan or finance to make a purchase for your home, lenders will check your report. They’ll use it to decide whether or not to lend to you, which is based on what they see when they run what’s called a hard credit check.
Using the information on your credit report and the personal information you’ve entered, you’re given a numerical score that represents your credit history and shows how creditworthy you are. Different credit agencies use different marking systems, but your score will be marked out of hundreds. Lenders then use your score, along with your report, to work out whether or not you’re a good investment to lend to.
Worried your score isn’t as good as it could be? We’ve got some helpful tips that could improve your credit score.
Will comparing loans affect my credit score?
Simply put, comparing with us won’t affect your credit score. When you compare loans, we’ll carry out what’s called a ‘soft search’. This will help us match you to your credit report to get a feel for your borrowing history.
You can compare with us as many times as you like and it won’t affect your credit score, so feel free to compare your options!
What are hard and soft credit checks?
Hard credit check
A hard credit check happens when you apply for credit from a lender. When the lender is deciding whether to approve your application, they’ll take a look at your credit report. This is called a hard credit check. It’s far more thorough than a soft credit check and it can leave a semi-permanent mark on your report.
To make sure they get a full picture, a lender might check your report from more than one major credit agency. It’s worth remembering that these hard checks are tied to your credit application and that they can affect your credit score.
If you have too many failed applications for credit, then the hard credit check marks left on your report could damage your credit score. Lenders will see these and might think that you’re having financial difficulties or that you can’t pay back bills. This could bring down your chances of being approved, so it’s always worth comparing loans first rather than applying straightaway.
Soft credit check
A soft credit check happens when a comparison site like ourselves check your credit report to get you loan offers for you to compare. It also happens when you look at your own credit report or when a financial company views your credit report to pre-approve you.
These types of checks are designed so that businesses can take a peek at your credit report to get an idea of what offers you might be eligible for. Soft credit checks aren’t marked on your credit report and they won’t affect your credit score, so you can get as many as you like.
By comparing with us first rather than applying straight to the lender, you’ll be able to get an idea of what offers are available to you. Our loans partner, Monevo will only ever run soft credit checks on your credit report. A lender will need to run a hard credit check once you’ve chosen their offer and applied for credit from them.
How to understand APR
An annual percentage rate (APR) helps you understand the total cost of borrowing. Like when you take out a loan. APR takes into account the interest rate and any additional charges, to give a complete picture of how much a loan you're looking into will cost you. You'll see APR expressed as a percentage on our site.
The APR shows you the combined total cost of all the compulsory charges that you'd have to pay per year. The APR won't include things like administration fees, payment protection, late payment charges or exit fees. So, take care when reading the terms and conditions. If you'd like a more in-depth look into APRs and how they affect your borrowing, our APRs explained guide could help.
Term of the loan
The term of the loan is how long you’re making repayments for. To a certain degree, how much you want to borrow will determine the length of the term. For example, a loan of £8,000 will be difficult to pay off in 12 months as the monthly repayments might be too high. However, if you only borrow £3,000 for the same term, this could be much more manageable.
The term can also have an effect on the total cost you’ll have to pay back. A longer term could mean lower monthly payments. However, it does have an effect on the interest you’ll be paying back, which means the total interest could be higher than if you chose a shorter term.
Be careful not to borrow more than you can afford to pay back and weigh up your options carefully. Working out a budget first is always a good idea! Whatever your financial situation, it’s worth shopping around and comparing as many offers as possible to find the best deal for you.
Whilst we encourage you to shop around with us and find our best deal, it can be easy to get carried away by the amounts available to you. Setting a rough but flexible monthly budget could be the best approach before diving in to compare deals.
Will I be accepted for a loan?
Whether you’re accepted or not mainly comes down to your personal details and your credit history. Both will help to give the lender an idea of whether or not you’ll be able to afford the repayments. Of course, different types of loans and lenders will look for different things when they’re approving your application, which makes it all the more important to compare.
Tips on how to manage your loan repayment
Knowing how to manage your loan once you have it is very important. Making sure your repayments are on time, for the correct amount and for the full term means you’re doing a great job! Here are some helpful answers to some questions you might have:
How do I pay back a loan?
When taking out a loan, you’ll have to set up an agreement with the lender on how long you’ll have to make the repayments for. This will usually be between 1 to 5 years. You’ll then receive the amount in a lump sum and the lender will probably ask you to repay it in instalments every month.
The amount of these instalments will depend on the size of the loan, the term length and the interest rate.
Can I make changes to my loan?
If your personal circumstances change or you get into financial difficulty you should let your lender know as soon as possible. If you move house, update your contact details or change your name or your employment status, make sure you let them know. They can then update their records.
If you’d like to extend the length of your term or increase the amount you’ve borrowed, it’s worth getting in touch with your lender. You may not be able to adjust your existing deal but they might offer you a new one that suits you better.
Can I pay off my loan early?
If you’re lucky enough to be in a position to pay off your deal earlier than expected, you may be able to ask your lender for what’s called an early settlement amount. This will show your outstanding balance, interest that’s been deducted, any early repayment charges and the final settlement you need to pay. But be careful – sometimes, paying off early might not save you any money.
Be sure to check what the early repayment fees are before you agree to anything, as you could be better off letting the repayments run their course.
What if I’m unable to pay off my loan?
Situations may crop up that may make you think you can’t make any more repayments. For example, if you’re emigrating to a different country your deal won’t change. You’ll still need to make the agreed payments back to the lender. If this is a problem for you, talk to your lender and they might be able to offer you some flexibility.
For any circumstances that might affect your repayment plan, make sure to speak to your lender as soon as possible.
If you have any questions we haven’t covered, head over to our FAQs page to see if we’ve got what you need there!
Comparing loans with Confused.com and Monevo
We’ve teamed up with experts Monevo to offer the best possible deals on unsecured, secured and guarantor loans. With Monevo’s service you get:
A free service with no obligation to apply once you’ve got your rate
Eligibility checks with no impact on your credit score - lending partners run a soft search on your credit file which doesn’t affect your score
If you’re thinking of applying for a secured loan: think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.
If you’re thinking of consolidating existing borrowing: you should be aware that you may be extending the terms of the debt and increasing the total amount you repay.
Need more help? Take a look at our expert guides
A look at unsecured vs secured loans.
What you need to know to improve your score.
Everything you need to know about guarantor loans.
Confused about bridging loans? We're here to help.
Everything you need to know about wedding loans.
The pros and cons of wedding loans.