Loans

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 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.

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.

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!