Banks have become more cautious about lending to people in recent times, and the rates at which they do so have become more expensive for some.
Even so, if you look in the right places the search for an affordable loan may not be the impossible quest you might think.
Am I eligible for a loan?
The first thing to remember is that you should never apply for loans on the off chance that you'll get accepted without doing your research, this is because every time you apply for a loan it leaves a footprint on your credit history.
So, if you apply unsuccessfully for several loans, then your credit history will show each of these searches. This could potentially make it more difficult to get a loan in the future because multiple applications within a short period of time makes you appear desperate for credit.
It is far more sensible, then, to look at your situation and decide whether you're likely to be given a loan and if so at what rate. The cheapest bank loans will be given to those who are best able to pay it back, so you can start by asking yourself exactly the same questions your bank will.
Are you reliable?
What's your credit history like? Have you been good as gold in the past, making every payment promptly, or have you defaulted on a few loans and missed a few payments.
If so then the bank may consider you too high a risk, even if you have plenty of money coming in.
There are a number of bank loans for bad credit available, but these tend to come quite high interest rates. For example, while someone with good credit might expect to find rates around the 7% mark, someone with poor credit could find themselves paying out significantly more.
You can review your credit report by checking credit report agencies such as Experian or Equifax.
Do you have a stable job?
If not it may be difficult to get a loan. Banks want some reassurance that you will be able to make payments and the only real way to guarantee that is if you have regular money coming in.
They will look at the amount you're being paid as well as the length of time you've been in the job.
If you're self-employed, though, they may take a dim view as, even if you can show good recent income, they will consider you at high risk of losing work. Some banks will consider self-employed people but will need to see several years of accounts.
Do you have other loans?
The bank will also look at how much you're paying out each month. They'll check if you have other loans, mortgages and credit cards to see how much you're committed to paying in any given month.
If this figure mounts up they may decide against giving you a loan or increasing the amount of interest you'll have to pay.
If you do have several loans you may want to consider consolidating your debt. A consolidation loan can be used to combine multiple financial commitments into a single loan with more affordable monthly repayments.
If you think a consolidation loan could be the right option for you, take a look at our comparison.
Applying for a bank loan
If you've asked yourself all these questions, the next step is to go out and find the best bank loans available. A good starting point is a comparison site such as this one which makes it very easy to compare bank loans.
This will give you an idea of what kind of rates you might expect, but remember that this is only an advertised rate. What you get will depend on your bank's assessment of the risks in lending to you.
It also doesn't fully take into account the types of loans you might want. For example are you looking just for UK bank loans or are you looking overseas also? Are you looking for personal bank loans or are you looking for a business loan?
You might also go looking for bank loans for cars which will enable you to buy a much nicer car than you can currently afford.
If you have a number of loans outstanding, you might want to look for bank consolidation loans. These would enable you to pay off all existing loans and group them instead under one new loan. This only works if you can find a better interest rate than one that would be offered by your existing provider.
Last but not least, to get the best bank loan possible it's never been more important to shop around as much as possible. Don't just ask your existing bank what they can offer, look at the whole market. Whether your looking for the best bank loans for cars, home improvements or a holiday shop around to get the bank loan rates comparison possible.
Remember, rather than applying for loans with different banks to see which will lend you the best rate ask for a cost illustration instead because this will give you an indication of the amount you're likely to pay in interest without affecting your chance of ultimately getting approved for a bank loan.
Check your credit rating
Look beyond the headline rate
The headline rate, or 'Representative APR' means the interest rate that the bank or building society makes available to loans taken out by at least 51% of borrowers.
The rate you are offered will be determined based on a number of factors, such as credit score, how much you want to borrow and any financial associations you have with others.
When you compare loans, it's vital that you look beyond the top 10 loans available and compare loan rates and likely cost for the amount you need to borrow from all the loan providers out there.
Remember to check the application criteria before you apply to make sure you're eligible, as loan providers will often restrict their loan's availability to those with a fair credit rating.
You can find out how much each loan should cost you using our loan calculator.
Consider alternatives to loans
You could benefit from taking out a credit card that offers interest-free purchases instead of a loan.
By taking out a 0% purchases card instead, you could borrow the amount you need (providing your credit limit stretches to this) without being charged interest, as long as you pay off the balance before the introductory period is up.
Avoid payday loans if you can
This type of loan is usually offered on a very short term basis, under the guise of lending you enough money to see you through to payday.
The vast majority of payday loans will apply an extortionate rate of interest on to your borrowing, which means you will end up paying out far more than the amount you borrow.
Loyalty doesn't always pay
Loyalty in the world of finance rarely pays, as you may well be offered a better deal on your loan - for example a lower APR or flexible terms on repayments - by a bank that is welcoming you as a new customer.
Take the term into account
You'll need to be aware that the longer the term, the more expensive your loan will be overall as you will be paying interest for a longer period of time.
For example, if you took out a £5,000 loan with an APR of 8% and a term of 5 years, you would be paying £400 per year for 5 years - adding up to £2,000 overall in interest alone.
Fix your rate
Most unsecured loans nowadays will offer fixed rates, but it is important to check the small print before applying so that you are certain of what your interest rate will be, and how long it will stay fixed for.
Don't automatically take out PPI with your loan
PPI protects you if you become unable to repay your loan because of a loss of income, and will cover loan repayments if this is the case. For this reason it can be a good idea for those who want the peace of mind that whatever happens, the loan will be paid off, although it is by no means an essential.