by Aidan Kang, CFA
Senior Writer
UPDATED: February 07, 2023

Be it for personal or professional use, there can be many reasons why someone might choose to take out a loan. While taking out a loan can be more straightforward than you might realize, there are certain things you need to know about the application process. Read on to find out more.

What is a Loan?

A loan is a form of credit where an amount of money is issued by a lender to a borrower, under the agreement that the amount will be paid back over a specified period of time with added interest. Unlike a revolving line of credit like a credit card, a loan is a one-time payment and may require the borrower to put up collateral, such as property.

Loans come in many forms and can be used for a variety of different things. Personal loans are taken out by individuals and can be used to cover everything from home renovations to a holiday. Business loans are taken out by companies, with these usually used for things like business growth or product development.

However, banks and financial institutions won’t just lend money to anyone. To be approved for and granted a loan, borrowers will first need to go through an application process. Let’s find out more.

Applying for a Loan is Easier than Ever

In days gone by, applying for a loan would require the borrower to visit their bank, speak with staff, and fill out physical forms and paperwork. While this is certainly still an available option for applying for loans, modern technology has made the process easier than ever.

Modern financial websites and apps will have in-built loan application systems, with some even allowing for sending loan applications via SMS messages. This means that borrowers can apply for one or several loans quickly and easily from the comfort of their homes, without ever having to physically visit the bank or lender in person.

When applying for a loan, the borrower will be asked to divulge basic personal information, such as their name, date of birth, contact details, and income status. This information will help the lender come to a decision about whether or not to approve the loan application.

Approval Waiting Times can Vary

Once a loan application has been completed and sent off to a bank or financial institution, the prospective borrower must then wait to hear whether or not their loan has been approved. There are various factors that can influence the duration of this waiting period, including the type of loan, the amount of money, and the particular lender issuing it.

Loans today are typically approved much faster than loans in the past, but borrowers can still expect to wait up to a week in some cases before they hear whether or not their loan application has been approved.

How do lenders come to a decision about whether or not to approve a loan? One of the major influencing factors is the applicant's credit score.

What is a Credit Score?

A credit score is the term used to refer to someone’s collective financial history. Generally, credit scores are calculated and compiled by the financial institutions Equifax, Experian, and TransUnion. When someone submits a loan application, the lender will contact one of these institutions who will then provide them with details of the applicant's credit score and history.

Various things will influence and negatively impact someone’s credit score. These include things like any missed repayments on past loans, any outstanding debt, applying for credit too regularly, or being too close to your credit limit.

Lenders will carefully review the credit score and history of loan applicants when making their decision about whether or not to approve loans. A poor credit score can indicate that the borrower will be unlikely to make repayments in full or on time, which can lead the lender to decline an application.

How to Improve Your Chances

Having a loan application declined can be an unpleasant experience. While being rejected will not damage someone’s credit score in and of itself, it can lead to them making multiple applications which can negatively impact their score.

To avoid this, it’s important to take steps that maximize the chances of a loan application being successful. Often, loan applications can be rejected due to simple administrative errors on the borrower's part. Ensuring that all personal details are filled out correctly is an easy way of improving an application's chance of success.

However, loan applications are also regularly rejected because of a poor credit score. How can an applicant improve their credit rating to help them secure a loan?

How to Improve Credit Rating

The idea of a bad credit rating is enough to fill some people with dread. However, while a poor credit rating can be detrimental, there are steps that can be taken to improve it. Two of the most important steps are to clear any outstanding debt wherever possible and to make debt repayments in full and on time. This will demonstrate to lenders that the applicant is responsible and capable of managing their finances, making them a much more attractive option for a loan approval.

It can be easy to reapply for a loan immediately after being rejected, either at the same or from another financial institution. However, repeated applications can negatively affect credit ratings, so it’s important to review an application and figure out why it has been rejected before applying again.  


Applying for a loan can seem intimidating, but the process is actually far simpler than many people might expect. Modern technology has made applying for a loan easier than ever before. Now, applications can be completed and sent off online without the need to visit a bank or lender in person.

However, borrowers can expect to have to wait before being informed about the lender’s decision, and their application can be approved or rejected depending on a number of different factors. Credit rating is one of the most important things to consider when applying for a loan. A poor credit can make a loan approval unlikely, but thankfully there are measures available to rectify this.