Whether it’s a broken boiler, a new kitchen or a much needed holiday, when it comes to financing, a bank loan is one possible option. If you want to know how to get a loan from a bank, follow this step-by-step guide.
1. Make sure you meet the basic criteria
It’s important to do this before you apply. Exact requirements vary depending on the lender, but the main criteria are largely the same.
You will need to be aged 18 or over to apply for a loan in your own right. Some banks require you to be over 25.
To apply for a personal loan with a UK bank, you will need to be a UK resident. Some lenders define this as having lived in the UK for at least three years. Many lenders exclude the Channel Islands and the Isle of Man.
Lenders generally require borrowers to have a regular income. Some will require you to have an annual income of at least £15,000.
Many lenders prefer you to have a current account with them. It’s often easier to apply for a loan with the bank where you have a current account.
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2. Work out the amount and repayment term
Before you apply, work out the amount you can afford to borrow over a realistic time period. Most banks have loan calculators that can work out the repayments when you define the loan amount and term.
It’s important that you are realistic. If you are unable to repay the loan within a specific time period without sacrificing your food bill, then you need to need to do one of two things:
- Reduce the loan amount
- Increase the time taken to repay it
Either of these actions will reduce the size of each repayment.
When you apply for a bank loan, your income will be taken into account. If you are unable to work out how to make ends meet while repaying the loan, then chances are the bank will pick up on this and reject your application.
3. Check your credit score
This is an important step. When you apply for a loan, the bank will check your credit history.
Most lenders stipulate that they will not give bank loans to applicants that have a history of bad credit or have been declined credit in the month prior to the application.
When considering how to get a loan from a bank, you will need a good credit score. If you are unsure of your credit rating, it might be an idea to check your records at the three main credit reference agencies (Equifax, Experian and Trans Union) before you apply.
For further information, check out our article on understanding your credit report and your credit score.
4. Decide on the type of loan you want
You can choose between two basic types of loan.
The money you borrow is secured against an asset that will be taken if you can’t pay back the loan. Typical assets include your home or a car.
This type of loan is regarded as low risk, so it is used to borrow large sums of money – typically more than £10,000. The interest rate tends to be lower.
The process is more straightforward because you do not have to use an asset as collateral in case of non-payment. This type of loan is considered a higher risk by the lender. As a result, the amount you can borrow tends to be less than £10,000 and the interest rate is usually higher.
5. Submit an application
Loan applications are quite straightforward. You can usually fill out a form and submit it online or you can apply over the telephone.
You can often get approved in a matter of minutes following the submission of your application. Once you are approved, the lender will send you the loan details, including when you will receive the funds.
When thinking about how to get a loan from a bank, the process is quicker if you apply at a bank where you are an existing account holder.
What if your application is unsuccessful?
If your application is rejected you will need to wait at least one month before trying again.
If you are seeking a loan because you are struggling with debt, then debt advice may be a better option. Agencies that offer free, impartial advice include Citizen’s Advice, Step Change and the Debt Advice Foundation.
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