Imagine a situation where you suddenly need £500 to pay towards an emergency expense. Now, you’ve done the research and know the best emergency loan provider and their borrowing terms, including fees, interest rates and borrowing tenure.
But just as you are about to apply for a loan, you face a hurdle: you lack the required documentation. Although many payday and short-term lenders are more flexible with their paperwork and eligibility requirements, there are still some basic paperwork requirements that you need to furnish to get a loan approval. For personal loans and other conventional secured and unsecured loans of higher amounts, the documentation list is more extensive.
Unfortunately, your loan application may be rejected if you’ve supplied incomplete or inaccurate information or documentation. To avoid such a situation, we’ve compiled a list of the necessary paperwork you need to have before applying for a loan. Let’s get started!
1. Proof of Identity
Lenders need to prove your identity, and you’ll require a government-issued ID card for the same. This includes a driving license and a passport. However, one thing to ensure is that the details on your documents match the application form, including the spelling of your name and address. For example, if your passport says Alex Angello Smith, you cannot write Alex Smith in your application.
Also, the documentation should be valid; a lapsed passport or driving license will not be considered.
2. Proof of Address
You need to provide valid proof of address, such as utility bills, council tax bills, or bank statements. However, they must be recent; it is a good practice to provide bills from the last three months.
An outdated bill might lead to a loan application being rejected. For those living in rented properties, a rent agreement can also act as proof of address.
3. Proof of Income
Lenders need to determine whether you can repay the loan. Some of the accepted documents include payslips of the last 3-6 months, a P60 form, and a recent bank statement showing salary credit and expenses. If you are self-employed, you may need to provide your tax returns and the SA302 letter.
If a co-applicant is a pensioner, it’s important to share a recent pension statement from the government or a private pension fund and a bereavement allowance. The pension statement cannot be more than a year old.
Some lenders extend loans to people on benefits, given that they can furnish either of the following documents:
- Disability living allowances
- Court-ordered maintenance
- Incapacity benefit
- Industrial Injuries Disablement Benefit
- Personal Independence Payment
- Income-related Employment and Support Allowance
4. Bank Details
A lending institution will need access to your recent bank statements (from the last 3-6 months) to determine your income and expenses and to understand whether you have any other existing debt.
You will need to provide your bank account number and other details to enable seamless disbursal of the loan amount upon approval. This can also serve as the primary account from which your repayments will be made.
5. Loan Application Form
The loan application form must be completed. Make sure you fill it out without making any mistakes, such as spelling errors, overwriting, or scratching. Write in block letters and always double-check the details before submitting the form.
6. Proof of Ownership for Secured Loan
Those taking out a secured loan against their home will need to provide proof of ownership. This can include property deeds, mortgage statements, professional valuations of the said property and insurance documentation.
For mortgages, you might need to furnish additional paperwork, including the title deed, approved plan, sales contract, and valid builder’s contract.
7. Details About Existing Debt Commitments
A potential lender will need to know about existing debt commitments. This includes student loans, childcare support, car loans, or credit card debts. This will allow the lender to make an informed decision about whether you can repay the loan without defaulting or taking on additional debt.
Every loan application (apart from those lenders who follow open banking policy) leads to a hard credit check, and it shows up on your credit report and also affects your credit score. So, always be mindful before applying for loans, and get your ducks in a row to avoid rejection. Repeated rejection often appears as a red flag, making it challenging to borrow money.
In Conclusion
Payday and short-term loans have flexible eligibility requirements and require minimal paperwork. These loans are designed with the borrower’s ease of access in mind and are intended as emergency financial assistance when your savings or traditional debt options might not be viable. These are often for smaller amounts, repaid over a shorter period, and carry high APRs to compensate for the risks.
For higher loan amounts, like personal loans, mortgages or car loans, you need to furnish extensive documentation and undergo stringent checks before approval. There is a lot at stake for lenders in these loans, and they need to double-check your creditworthiness before disbursing. A good credit score is often a prerequisite for these loans.
