A personal loan is one of the most appealing lending options for individuals who want to access finance to help them pay for a range of different things, spanning all the way from holidays to weddings and home improvements. Personal loans are a type of unsecured loan, which means that you can borrow money from a bank, building society, or alternative lender, without having to place security against the loan in the form of your home or car. Rather than asking you to provide security for your loan, most personal loan providers will base their decision on whether to give you credit, by looking at a range of factors, including your personal credit history. This means that they will perform a credit check that offers an insight into your financial behaviour and “risk” level.
Understanding the Personal Loan Credit Check
When you apply for a personal loan with any kind of lender, that lender will use an approved agency to search your name and address and find information about how you’ve handled money in the past. The credit check will allow the lender to see if you’ve had any bankruptcies or problems with repayments in the past, and it will also provide something called a “credit rating”, which shows how risky it might be to give you a personal loan.
The problem with credit checks and personal loans is that every time you try to shop around for a loan and get a quote from a different lender, a mark will be placed on your file that could damage your credit rating. Applying for a loan or asking for a quote can leave footprints on your credit history that make it appears other lenders have rejected your application – even when that isn’t the case.
This means that it is important for people who want to preserve their credit history to think carefully about how they’re going to find the best possible personal loan deal before they start applying with different lenders. For instance, using a comparison website that promises not to damage your credit report could be a good start. While you might not be able to get a completely accurate insight into the APR you’ll need to pay with a comparison website, you should have a basic idea of where you’d want to apply for the best deals.
The Benefits of Getting a Personal Loan
A personal loan can be a wonderful way to get access to credit if you’re struggling to find enough money for your next big purchase. Often, personal loans allow you to borrow more than with a standard credit card, and your loan repayments will typically be fixed to a certain amount each month, which makes it much easier for you to budget.
Personal loans also generally allow you to choose the length of your loan too. However, it’s important to remember that the longer you take to repay the money you owe, the more interest you’ll need to pay overall. Saying that a lot of people choose to consolidate their existing debts into a single personal loan, as this can allow them to reduce their monthly repayment costs, and get some control back over their finances.
The key thing to remember when choosing the right personal loan is that you may not always get the interest rate that’s advertised or the APR that’s provided. Only about half of the people who apply for a loan are given the APR, which means that you can pay less or more. Ideally, you should think about asking the lender for a more personalised quote on the loan product before you officially fill out an application.
Getting the Best Personal Loan Deal
If you want an opportunity to get the best possible personal loan deal, then it’s important to make sure that you don’t simply accept the first rate that you’re offered by your building society or bank. Instead, you should take the time to shop around and see which providers might be able to offer the cheapest APR. Remember, you can end up paying more on your APR if you have a bad credit history, but the APR should give you an insight into the average amount you’re likely to pay. Once you’re ready, ask your lender for a quote before you apply, and if they do have to do a credit check in order to give you a more accurate number, ask them if they’re able to do a quotation search
instead which will not leave a mark on your credit history. You could also consider peer to peer loans if you know you have a decent credit score.