As with all forms of credit you must be over 18 before you apply for a loan. Most people find at some time in their lives that they may want access to extra money that they can pay back later.

Taking a loan out can be the sensible answer to help with a big purchase by repaying set amounts each month. You need to consider carefully which form of loan/credit is the best for you.

Most loans require you to:

• be resident or ordinarily resident in the UK;
• have a good credit record;
• receive a regular income;
• some may ask for a deposit and also charge a set-up or administrative fee.

Payment protection

A lot of banks and building societies will offer you payment protection with your loan. For a small monthly fee this ensures that your repayments will be paid if you find that you are made unemployed, are sick or have an accident. In most cases if you die your loan will be paid in full for you.

Credit rating

All lenders will credit rate (also called credit score) you before they give you the money.

They'll ask you questions about whether you own your own home, how much money you earn, and what other debts you have.

Whether you get credit will depend upon the lender's requirements and whether your answers are acceptable. If, for example, you already have credit, you make your monthly payments on time and fit all the other criteria, the lender may agree to give you credit.

If you have a bad credit history and have gone into arrears on any other payments then some lenders may decide not to give you the money. However, you are equally as likely not to get money if you have never had credit before because the lender cannot check whether you have managed credit well in the past.

Lenders get their information from credit reference agencies. These agencies hold details of people's credit history. The lender does not have to give you a reason for turning you down for a loan but you do have a legal right to be given the name and address of the credit reference agency that they used.

If you want to check with the credit agency about the information they hold about you, you should write to the lender within 28 days of your last contact with them. They have to reply within seven days with the address of the credit agency. You can then contact the agency to find out what information is on your file and let them know if anything is incorrect.

The three major credit reference agencies are:

• Experian
• Equifax
• Callcredit

Loan sharks

Be very careful when you choose a lender. Make sure you use a reputable company, as some of the more unscrupulous lenders can often charge very high rates of interest that make it difficult to pay the money back. Check what you are committing yourself to before you sign any contracts.

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Updated: 17/10/2011