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Back in the day, loans were a real hassle. You’d have to apply in person, go through stacks of paperwork and maybe even have to meet the bank manager. 

Today though, most people apply for a loan online, and the process is much easier.

You might be surprised by how streamlined a loan application is, and by how few documents you might require. However, everyone’s experience will be different, so in this article, we’ll look at what lenders are likely to ask you in the application process, with tips on how to make things as straightforward as possible.

In this article, part of our guide to personal loans, we’ll focus on unsecured loans, which are the most common way for people to borrow fixed amounts in the UK.

Koyo uses Open Banking technology, which may mean that we don’t need any documents at all - more on that later, but if you want to take a look at that, you can find out more at www.koyoloans.com. Representative APR 27%.

What documents do I need for a personal loan?

Here’s the good news: you’re likely to require minimal documents, and they should be easy to find.

When you apply for a loan, most lenders want to check two things:

  1. Are you who you say you are?

  2. Is the information you’ve submitted accurate?

In order to do this, many lenders will start by asking you for the following information when you fill out your application form:

  • Your address history, usually for the last 3 years.

  • Your employer’s details.

  • Your bank or building society details (including the sort code and account number, which will be used for your monthly repayments).

If you’re an existing customer (for example if you want to get a loan from a bank where you also have a current account), your lender might check this information against its records, and find that everything’s in order. They may also be able to check information using your credit report.

However, lenders will often ask for further information, including proof of identity and proof of your address. If that’s the case, they’ll usually want to see a recent bill, such as a utility or council tax bill in your name and with your current address, or a scan of your passport or driving licence.

 a visual guide to what documents might be required for a personal loan

These days, scans are usually enough - you should be wary of sending original documents, particularly for important things like your passport and driving licence.

One other thing you might be asked for is income verification, which usually takes the form of a recent payslip. Again, a scan or copy should do, but things can get a bit trickier if you’re self-employed, or have multiple sources of income - you may need to provide documentation for each one, and we’ll look at this in more detail below. 

Income verification is particularly likely to be required if you’re borrowing a lot - it’s a way for a responsible lender to make sure that you have enough income to comfortably repay the loan.

How Open Banking can help

Open Banking is a safe, secure way for you to give providers access to your financial information, rolled out in 2018 - and it could mean that you don’t need any documentation at all when you apply for a loan!

Lenders such as Koyo use Open Banking technology to minimise the amount of documentation you have to provide. By giving a lender secure access to your financial data (usually your main bank account), you’re making it possible for that lender to check your income and expenditure directly.

As a result, for most customers, Koyo doesn’t require any documents at all. In some cases, where it’s impossible to independently verify your ID, we might need to see a passport or driving license, but for most borrowers, everything takes place online and - by using Open Banking technology - we can do it without you needing to dig out old utility bills or asking to see your passport.

What do lenders look for when you apply for a personal loan?

The key questions that the lender will usually ask itself are:

  1. Does the borrower have a track record of repaying loans?
  2. Is the borrower who they say they are?
  3. Is this loan affordable for the borrower?

Most of the questions you’ll be asked - and documents you might have to submit - are linked two the three points above.

Again, Open Banking lenders are slightly different in that they’re less focused on the credit score needed for personal loans or what credit bureaus say about you (the first point above), and more focused on whether a loan is affordable for you. As a result, they put more weight on affordability, rather than your track record or credit history.

Related post: Not sure whether to use a credit card or a personal loan? We’ve written a detailed, simple to use guide explaining the pros and cons for both, with information on how to get the best out of each one.

Can I get a personal loan without proof of income?

A responsible lender will only want to lend you money if it’s confident you’ll be able to pay it back. As a result, you may be required to prove your income when applying for a loan.

This is often straightforward if you’re a salaried employee, but if you have a different working arrangement (if you’re a freelancer, for example, or run your own small business), it can be much trickier.

If that’s the case, unfortunately, you’ll have a tougher time accessing credit and may face higher interest rates. However, while some lenders see you as off-limits, there are a good number of providers out there who do consider this sort of loan. You’ll need to demonstrate a steady income, perhaps using additional documents such as bank statements, invoices and tax returns, and show that the loan is affordable for you. 

Are you thinking about taking out your first loan? Our guide for first time borrowers will help you pick the right option for you, as well as maximise your chances of approval with insider tips and advice.

How else can I prepare for a personal loan?

Good question. There are a few things you can do to make sure you’re in great financial shape before applying for a loan.

Step

Why?

Check and improve your credit score (useful guide here).

For non-Open Banking lenders, your credit score is one of the most important factors taken into account when you apply for a loan.

Make a budget and use a loan calculator to check you can afford the payments over the long term.

Modern lenders will tell you exactly what you need to pay, and when - helping you to stay on top of your finances and make good financial decisions.

Lower your debt to income ratio, to make a loan more affordable for you.

If possible, reducing the amount of debt you have outstanding, for example by repaying a credit card, will improve your loan eligibility.

If you want to know more about personal loans, we’ve got you covered: you can take a look at our guide to the best reasons to get a personal loan, common reasons for personal loan rejection, the best personal loans for people with a “fair” credit score and our detailed guide which answers the question ”what is a personal loan?”.

And if you have all the information you need, you’re ready to start looking at providers. 

Koyo uses Open Banking technology so that we can base our lending decisions on your real financial situation - rather than what someone else says about you. Find out more at www.koyoloans.com. Representative APR 27%.

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