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If you want to borrow money, it’s a good idea to check your loan eligibility first. Understanding if you’re eligible for a loan before applying helps you minimise the number of applications you make. Too many applications for credit over a short time can damage your credit score.
Many lenders allow you to check your personal loan eligibility without affecting your credit score.
Different factors, such as your credit history, any existing debts and your income will help a lender decide if you fit its criteria and whether to offer you a personal loan.
Other loans may be available in the UK loans market that are not included in this service.
Am I eligible for a loan?
To be eligible for a personal loan, you typically need to:
- be at least 18 years old
- be a UK resident with a UK bank account
- have a regular income
Beyond this, your loan eligibility usually depends on the criteria of individual lenders.
Lenders are required to check that you can afford to repay the loan. They can look at your income, regular expenses, spending habits and any existing debts, as well as your credit history, to work out whether to approve your loan application.
If you’ve repaid previous credit on time, haven’t experienced other significant financial difficulties and have a secure income, you’re more likely to be eligible for a personal loan.
Some lenders set minimum income requirements and may only offer loans to people with good credit scores. Other lenders cater to those with bad credit, however borrowing with a poor credit score is typically more expensive.
Depending on the lender, there may be other criteria too. For example, some high street banks don’t accept applications from people who don’t have a current account with them.
What you’re using the loan for can also make a difference, so the lender will usually ask what you plan to do with the money. Lenders vary, but most don’t allow you to use a personal loan for business, investments, timeshares, buying property (including as a mortgage deposit), or gambling.
» MORE: Compare the best personal loans
How can I check my loan eligibility?
Many lenders allow you to check your eligibility for a loan before you formally apply. You’ll often need to give information about your income and outgoings, job status and address history.
You can also use a loan eligibility service to check your eligibility for a loan across multiple lenders, which should only show you options you’re likely to qualify for. Comparison sites and some credit reference agencies offer tools like this.
Checking whether you’re eligible for a loan before you formally apply helps you limit the number of applications you make. When you apply for a loan properly, the lender usually does a ‘hard’ search of your credit file. Too many hard searches over a short time can damage your credit score.
Here are three ways to check your loan eligibility:
1. The lender’s loan eligibility checker
Direct lenders often have a tool on their website that gives you the option of checking your eligibility for a loan before you apply.
To see if you’re eligible, you’ll need to provide information about you and your financial situation, including your address history and income, and the lender may also run a soft credit check. Soft checks don’t affect your credit score.
You’ll also need to say how much you want to borrow, for example a £5,000 loan or a £10,000 loan, plus how long you want to pay it back over and what you want to use the money for.
The lender should then tell you how likely it is that your application will be accepted. You may get a pre-approved loan offer, which means that the lender provisionally agrees to offer you a loan at a certain Annual Percentage Rate (APR).
However, this isn’t a guarantee that you’ll get the loan. If you decide to apply, the lender will run a hard credit check before making a final decision on whether to lend you the money. Hard credit checks show your credit report.
2. A loan eligibility service
Rather than checking your eligibility with separate lenders, you can use a loan eligibility service that shows you multiple products you might be eligible for based on the details you provide.
Comparison websites can offer this feature, as do many credit reference agencies and credit scoring services, including Equifax, Experian and ClearScore.
You might see that you’re ‘pre-approved’ for certain deals, which helps give you confidence to apply. This is based on you entering accurate information – and these services don’t make the decision about whether to approve an application. You still have to apply with the lender and the lender’s decision will only come after you apply properly.
3. Your credit score
Checking your credit score helps you find out how the lender may view your application for a loan. Your credit score is based on the information in your credit report, so it’s a quick way to check the health of your credit history.
If your credit score is poor, it’s likely that the lender sees you as riskier to lend to than someone with a good credit score. A lower credit score indicates that you may not be eligible for a loan from the more mainstream lenders and you may have to explore options from specialist bad credit lenders instead.
These usually have higher interest rates and less flexible terms, for example lower maximum loan sizes.
What credit score do I need to get a loan?
Lenders determine your loan eligibility and the risk of lending to you by working out your credit score. It helps lenders decide:
- whether you’re eligible for a loan
- how much you can borrow
- the interest rate you’ll pay
Each lender calculates a credit score for you differently, but you can find out how the lender may view your application by checking your credit score with a credit reference agency.
A good credit score indicates that you’re more likely to be accepted for a loan and get a cheaper loan rate.
While a good credit score can improve your chances of approval, the lender also looks at other factors when deciding whether to offer you a loan. This can include your income, outgoings and even data it already has about you – for example if you’ve got another product with the same firm, such as a credit card.
By checking your credit history, lenders want to understand how you’ve managed your finances in the past and will look for specific information, including:
- details of credit agreements
- financial links you have with other people
- missed payments
- county court judgments (CCJs) or decrees (Scotland), individual voluntary arrangements (IVAs) or bankruptcies
You can check your credit score and report with the three credit scoring agencies Experian, Equifax and TransUnion. They must provide you with a free statutory credit report by law, which you can request online at their websites or by post.
» MORE: What credit score do I need for a loan?
What if I’m not eligible for a loan?
If you use an eligibility checker and it says you’re not eligible for a loan, you can examine why this might be the case. Lenders can decline a loan application for many reasons, such as if you’ve made too many applications for credit recently or have an outstanding county court judgment (CCJ).
A lender may also turn down your application simply because it doesn’t think you could afford the repayments.
If the checker indicates that you’re not eligible for a loan, don’t then submit a formal application. You’re unlikely to be accepted and it will leave a mark on your credit history. Instead your next step could be to improve your credit score.
Too many applications for credit over a short time can affect your credit score and leave lenders concerned that you are struggling financially.
» MORE: What to do if you can’t get a loan
How can I improve my loan eligibility?
You can improve your loan eligibility by comparing loans, double checking each lender’s requirements before applying and only applying for a loan you’re confident about receiving.
While there’s no guarantee you’ll be accepted, if you meet the lender’s basic requirements you’ll be giving yourself the best chance of being accepted.
If you don’t qualify for a loan from one lender, you may need to consider a loan from a different provider that’s more suitable for your circumstances. For example, you could consider other options such as a guarantor loan. This is when someone you know acts as a guarantor and promises to repay the loan if you’re unable to, which gives the lender added security.
It’s also worth checking your credit score to see if there are any areas to improve. A better credit score could increase your chances of getting accepted for a loan.
There are several steps you can take to improve your credit score, though these can take time to show on your credit report.
The primary way to establish a good credit file is to build a history of making repayments on your credit accounts on time. You can also make sure you’re not using too much credit at any time and are keeping your balances low.
Even small actions such as registering to vote can improve your loan eligibility. Being on the electoral roll makes it easier for lenders to confirm your identity.
» MORE: How to improve your credit score
Should I get a personal loan?
If you need a loan to help fund a significant cost, you may want to consider it if:
- the repayments are affordable
- you’re not borrowing more than you need
- you don’t have a history of struggling to make repayments on time
- there aren’t other routes that might be more suitable or cost you less overall
Before you take out a personal loan, ask yourself if it’s necessary. You’re committing to repaying a loan over several years, along with the interest that will accrue, and during that time your personal and financial circumstances may change.
You need to be certain that you’ll be able to pay the money back. You might also consider how you would meet the repayments if you lost your income. You might be able to take out income protection or other insurance to cover that possibility, but that would add to the cost of the loan.
If you’re already struggling to meet your existing financial obligations, such as a mortgage or rent, think twice about taking out a personal loan. Some lenders will ask you to make sure you’ve considered the rise in the cost of living and how that may put a strain on your finances.
If you’re in financial difficulties, you may want to ask for debt help instead.
» MORE: How to apply for a loan
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