Small loans can come in many forms, such as personal loans or credit cards, but how do you get a small loan? They can be handy for a wide range of purposes, but if you’ve never looked into loans before this might be a daunting task!
So in this guide, Finance Rate explores the purpose of a small loan, what you may want to consider using it for, and a handy step-by-step guide from beginning to end to help you understand how to get a small loan, so you’re prepared for the eventuality in the future.
The purpose of a small loan
There are many types of loans, and one type of loan is a small loan, which can take the form of a personal loan, a payday loan or a credit card. Getting a small loan can be a helpful financial tool for various purposes, whether it’s for covering unexpected expenses, funding a business venture, or consolidating debt.
How to get a small loan: Your step-by-step guide
This step-by-step guide from Finance Rate will walk you through the process of obtaining a small loan in the UK, from the start to the end of the process, so you’re better equipped with the knowledge and confidence to manage this particular financial arrangement.
Step 1: Assess your financial situation
Before you apply for a loan, you should evaluate your financial situation to determine how much money you need, how you intend to use it, and how you’ll repay it.
Create a budget to understand your income, expenses, and how much you can comfortably afford to borrow.
Step 2: Check your credit score
Lenders use your credit score to assess your creditworthiness. This determines how a lender will see you and they deem you financially fit enough for a loan.
Order a free credit report from one of the UK’s credit reference agencies. Ensure your credit report is accurate, and if you spot any errors, dispute them. A good credit score will increase your chances of loan approval and better interest rates.
Step 3: Research different lenders
There are various types of lenders in the UK, including banks, credit unions, online lenders, and peer-to-peer lending platforms.
Research different lenders to find the one that suits your needs. Compare interest rates, loan terms, and eligibility requirements. Shopping around can help you get the best deal available.
Step 4: Choose the type of loan
Determine the type of loan that best fits your needs. Common small loan options include credit cards, personal loans and payday loans.
Step 5: Prepare the necessary documents
Lenders will require specific documents during the application process.
Common documents include proof of income (payslip), proof of identity (passport or driving licence), proof of address (utility bill or bank statement), and bank statements.
Ensure you have these documents readily available to minimise stress and allow for a smoother application process.
Step 6: Complete the application
Apply for the loan by filling out the lender’s application form either online or in person. Be honest and accurate in your application, remember you may have to back up certain information with documents, and any discrepancies may lead to a rejection.
Step 7: Wait for a decision
After submitting your application, the lender will review it. This may involve a credit check and an assessment of your financial circumstances.
Approval times vary, but you may receive a decision within a few hours to a few days.
Step 8: Review loan terms
If your application is approved, carefully review the loan terms and conditions. Pay close attention to the interest rate, repayment schedule, and any fees associated with the loan.
Ensure you fully understand the terms before proceeding.
If in doubt, be sure to the advisor handling your loan application, do your research, or speak with a financial advisor.
Step 9: Accept the loan
If you are satisfied with the loan terms, formally accept the offer. This often involves signing a loan agreement or electronically accepting the terms online. Keep a copy of the agreement for your records.
Step 10: Receive the funds
Once you’ve accepted the loan offer, the lender will disburse the funds to your designated bank account. The time it takes to receive the money can vary but is typically within a few business days.
Step 11: Repay the loan
Adhere to the agreed-upon repayment schedule. Make payments on time and in full to avoid late fees and damage to your credit score. Set up automatic payments if possible to ensure timely repayment.
Step 12: Build and monitor your credit
As you repay the loan, it’s an opportunity to improve your credit score if it wasn’t already strong.
Consistently making payments on time demonstrates responsible financial behaviour and can benefit your credit history.
Step 13: Consider financial counselling
If you’re struggling with debt or facing financial challenges, consider seeking assistance from a financial advisor. There may be underlying factors that could be affecting your financial situation and addressing these could be a step towards improving your money matters.
Step 14: Be Cautious
While small loans can be beneficial, it’s essential to use them responsibly. Avoid taking on more debt than you can comfortably handle and be wary of high-interest loans like payday loans, as they can lead to a cycle of debt.
Step 15: Maintain Good Financial Habits
After obtaining a small loan, continue practising good financial habits. Budget effectively, save for emergencies, and build a strong credit history to enhance your financial well-being.
In conclusion, obtaining a small loan in the UK involves careful planning, research, and responsible financial management. By following these steps and making informed decisions, you can successfully secure a small loan to meet your financial needs while safeguarding your financial future.
Helping to prepare you for taking out a small loan
At Finance Rate, we’re here to help you understand the process of getting a small loan and the steps you will need to take from the onset to receipt of the loan funds.
Finance topics can be daunting to face if you lack experience. The more information you have, the better your confidence in handling money matters in future. For further information about other money matters, head over to our homepage for additional resources.