What is a loan?
Taking out a loan means borrowing a lump sum of money and paying it back to your lender in instalments. Loan repayments are usually set at a fixed rate and will include an interest charge that is calculated as a percentage of the amount borrowed.
Applying for a Vanquis Loan
We may offer loans directly to eligible Vanquis credit card customers via email, SMS or through the Vanquis Bank App.
If you're new to Vanquis, you can use our online loan calculator to see if a loan would be right for you and if you're happy you can then apply online. To apply you'll need:
- your address details
- information on your income and outgoings
- details for any current credit agreements such as other personal loans or credit cards
Loans work by giving borrowers a lump sum, which is then repaid over a series of instalments, which include interest paid on your loan. The interest rate you’re charged has a big impact on the amount you repay.
Taking a loan out over a shorter repayment period means your monthly repayments can potentially be higher. However, whilst taking it out over a longer duration can result in lower monthly repayments, the overall interest is likely to be higher.
If you can’t keep up with repayments on a loan, this can damage your credit score and mean you could have difficulty getting credit in the future.
There are different types of loans that are designed for different needs and circumstances, including:
- Personal loans - Taken out by individuals and can be used for a range of purposes
- Guarantor loans - Require someone to agree to act as a guarantor and make repayments if the borrower can’t
- Secured loans - Require lenders to use property or personal belongings as security against non-payment
- Unsecured loans - Don’t require a guarantor or anything to be provided as security
- Loans for people with bad credit - Designed for people with a poor credit score or a limited credit history
- Online loans - Have a 100% online loan application process
- Debt consolidation loan - Designed to pay off other debts to help make debt more manageable and less expensive
The amount you can borrow depends upon the type of loan you apply for and your personal circumstances. The length of time you borrow money for depends upon the type of loan you take out, your current circumstances, and the terms agreed when you applied for the loan.
You should only apply for an amount which you can afford to repay back, lenders will typically conduct an affordability assessment based on your income and expenditure, amongst other things.
Although having bad credit or no credit history can limit your options, it doesn’t mean you can’t get a loan. There are a range of bad credit loans and online loans in the UK that are designed for borrowers in this position.
These loans typically come with lower borrowing limits to ensure they’re affordable, and higher interest rates to reflect the higher risk to lenders.
The exact criteria for a loan application varies from lender to lender. Typically, some of the below are things they will consider:
- Are you at least 18 years old? (Or 20 years old if you want to apply for a Vanquis loan?)
- Are you a UK resident?
- Can you confirm you are not legally restricted from obtaining credit e.g. because of bankruptcy?
- Lenders are likely to conduct affordability checks, these are based on your income and expenditure
How a loan application affects your credit score
Although every loan application you make is recorded on your credit file, not all will affect your credit score - it all depends on whether the lender carries out a ‘soft’ search or a ‘hard’ search.
‘Soft’ searches aren't visible to companies, so they won’t affect your credit score or any future credit applications. They are often used when you run an ‘eligibility check’ as part of your application. This is a preliminary search that gives you an indication of whether your application will be accepted before you apply in full.
It’s worth using an eligibility checker before you apply for any loans, especially if you have a poor credit score. This is because making a number of full applications in a short space of time will damage your credit score.
If you proceed to the full application, your lender will then run a full credit search before making a decision. A record of this ‘hard’ search will be left on your credit file and will affect your credit score.
Affordability is key when it comes to borrowing, so it makes sense to use a loan calculator before you apply for a loan.
Using a loan calculator will help you work out how much you’ll pay each month and overall. This can help you decide whether it’s better to spread the loan over a longer term to reduce the cost of monthly repayments, or pay it back over a shorter period to repay less in total.
Most lenders have calculators which give an indication of repayments over different periods.
You should consider your circumstances and the purpose of your loan before you enter into any financial agreement. If you think you’re ready to take out a loan, you need to make sure you’ve considered some of the following before you apply:
- Is the loan affordable? - Can you afford the monthly repayments without stretching your budget?
- What’s the interest on the loan? - It’s worth comparing different loans to see if you can reduce the level of interest you pay
- Are there any other options? - There may be a way to borrow money that’s more suitable than a loan
What does "APR" mean?
APR stands for Annual Percentage Rate and is used to show how much interest you’ll pay each year on money you’ve borrowed through a loan or credit card. It’s important to check the APR when comparing loans, as a higher APR normally means you’ll pay back more overall. To be sure, make sure you check the total amount you'll have to pay back.
Can I repay a loan early?
Yes, you can repay your loan early, but you may have an early repayment charge. Ask your lender for a settlement figure before you pay the loan off.
What is the difference between a secured and unsecured loan?
A secured loan requires you to use your property or possessions as security against non-payment. This could help increase your chance of acceptance, allow you to borrow more, or lower the interest rate on your loan. But missing repayments on an unsecured loan will damage your credit score and means any items you put up as security could be taken from you and sold to recover the debt.
An unsecured loan is offered without the need for this additional security. If you don’t keep up with repayments on an unsecured loan, your credit score will be affected and your lender may take debt recovery or legal action to get the money back.
What are the alternatives to loans?
It’s always worth considering all your options before applying for a personal loan, as you might find one of the following more suitable (depending on your own financial needs):
- Credit cards offer flexible repayment options and might be more suitable if your income varies. But making lower monthly repayments means your debt will take longer to repay and you’ll pay back more in interest
- An overdraft allows you to continue withdrawing money from your bank account when there’s not enough in there to cover the amount of the withdrawal. Overdrafts come with high rates of interest and should only be considered for very short-term borrowing
- Secured loans might allow you to borrow more, as you’ll need to put up property or possessions as security against non-payment. But this also means you could lose any items you put up as security if you can’t keep up with the loan repayments
Can I apply for a loan if I'm unemployed or on benefits?
If you’re unemployed or on benefits, your options for a loan will be limited as having little or no income can affect the affordability of any loan you apply for. If you’re struggling financially, this can also have an impact on your credit score.
You may still find you’re eligible for a loan, so make sure you only apply for a loan you can afford to repay from a lender that takes affordability into consideration alongside any other factors.
What is the difference between a direct lender and a broker ?
When you get a loan from a direct lender, this means you only ever deal with the company that lends you the money. Direct lenders handle all applications, pay the money into your account and take all repayments directly from you.
A broker acts as a go-between who collects your information and searches for suitable lenders for you. They don't actually lend you the money and you don't pay it back to them. Some brokers will charge a fee for their service, and applications can often take longer than when dealing directly with the lender.