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Guide to Open Banking loans
Learn the basics of Open Banking loans in the UK with our easy guide. Benefits, eligibility, repayments & more explained. Plus, get a quick online quote.
Abound Team
March 22, 2023

Beginner’s guide to Open Banking loans

Open Banking lenders look beyond credit scores to understand each applicant's unique financial situation. Get a personalised loan based on what you can afford.

Until recently, lenders had to rely on credit scores to make decisions. But with these incomplete insights, it can be tricky to prove your true borrowing power.

Open Banking changes this. In a nutshell, it’s a safe and secure way for you to leverage your financial data to get a loan. By deep diving into your day-to-day earnings and expenses, approved providers are able to see how much you can actually afford to borrow. Then they’ll design the best loan for you based on this full picture.

The result? Fair loan approvals, practical repayment terms and sometimes even a better rate.

Below, we break down the basics of Open Banking loans. Read on to get a better idea of how they work and whether this game-changing option could be the right way forward for your finances.

First things first, what is Open Banking?

Open Banking is a trusted way to share your financial information with third-party providers like lenders. Think spending habits, account features, credit cards and payment details - it’s all visible if you want it to be.

This whole process is made possible via an Application Programming Interface (API) - which is just jargon for software that connects one system with another. Once you give the green light, all your bank has to do is give the provider an API key to access your information.

Long story short, Open Banking was rolled out at the UK Government’s request in 2018 as part of the Payment Services Directive (PSD2).

Now, the UK’s largest banks have to make their data accessible without compromising on security, so that authorised companies can use it to your advantage. Because the big idea behind Open Banking is to help providers empower you with more effective financial services.

You can find financial service providers who are registered to Open Banking in the UK on the Open Banking Directory. Know that these companies are regulated by the Financial Conduct Authority and can only ever view your information with your consent.

How can Open Banking help me get a loan?

Traditionally, lenders would turn to credit agencies for information when deciding whether to approve your loan application. The problem here is that credit reports are actually quite limited. For starters, they’re often out of date, they don’t confirm the amount you earn each month, how much you’ve saved or even your employment status. If you’ve never taken out a loan before, they can also leave you frustrated, as your credit score will only be high if you’ve taken out a loan or credit card in the UK, and kept on top of the payments, before.

Open Banking fills in the gaps to help you get a loan. Rather than relying on credit history alone, loan providers that use Open Banking get the full set of financial figures straight from you.

With a greater understanding of your financial situation, these lenders may be more likely to accept you for a loan - even if you lack credit history. That’s good news for ‘thin file’ borrowers.

Even better, this Open Banking loan can be personalised to your needs. By looking at your bank transactions, the lender will be able to work out how much you can afford and structure their terms accordingly. And that might even result in a lower interest rate.

How to get a loan using Open Banking

Ready to reap the benefits of Open Banking loans? Here’s how to get a loan with the Open Banking lender of your choice:

  1. Apply online. During the application process, you’ll usually be asked to connect your bank account(s) so the company can get to know you and understand your financial situation.
  2. Wait while we review the numbers. Sit back while the lender gets secure access to your current account data. We’ll dig deep into the data to determine your ability to repay the loan and inform our lending decision.
  3. If approved, make monthly repayments. With Abound, these are collected using a debit card of your choice

It’s that simple.

What can Open Banking lenders see?

In general, lenders that use Open Banking will be able to view the following information:

  • Account details;
  • Outgoing payments, including standing orders and direct debits;
  • Incoming payments, such as salary and returns on investment; and
  • Extra account features like overdraft payments.

Remember that only approved lenders can access the above data. If you don’t want to give a certain provider this visibility, you won’t have to. It’s all up to you. And if you want to revoke consent, you can do it in a matter of seconds within your banking app. It’s also important to note that we can only view your transaction info, we will never be able to move money from your account.

Who can get an Open Banking loan?

To get an Open Banking loan in the UK, you’ll need to:

  • Be at least 18 years old;
  • Be a UK resident;
  • Have held a UK bank account for at least 6 months (or 3 months if you’ve just moved to the UK); and
  • Have no unpaid defaults or CCJs.

From there, it all comes down to your unique financial situation. That’s why we’ll take the time to look beyond credit history, reviewing your personal banking information in almost real time.

After all, the beauty of Open Banking loans is that lenders have the visibility to determine how much you can really afford to borrow. You should be able to make monthly payments from your regular income, with enough savings leftover to live comfortably.

Want a fast loan using Open Banking? Get a quick quote and apply online with Abound. If approved, you may be able to get your money in as little as one day.

Is a credit search needed for an Open Banking loan?

Yes. Open Banking lenders will still need to carry out a soft credit search. This step helps us to determine whether you’ll be able to afford repayments. If you’ve consistently made the payments on your other loans in the past, this will also increase your odds of approval. This step is really to check that you haven’t defaulted on any loans in the recent past.

But our assessment doesn’t stop at your credit score. Unlike traditional alternatives, Open Banking lenders will also factor in your overall financial situation. This is responsible lending that considers every corner of your bank account.

Does an Open Banking loan application affect my credit score?

No. Applying for an Open Banking loan won’t impact your credit score because soft credit checks aren’t visible to other lenders. Rest easy knowing there’ll be no risk to your rating.

However, if your loan application is approved and paid out, we’ll run a hard credit search which will be reflected on your credit report.

Repayments for Open Banking loans

Loan repayments with Open Banking will depend on the length of your term and the Annual Percentage Rate (APR).

This rate is determined by a whole host of factors, from interest rates and credit score to the sum borrowed and your personal finances.

That said, the larger the loan and the longer its repayment term, the lower your APR tends to be. And the smaller this percentage, the less interest and charges you’ll typically pay.

Speaking of payment, Abound collects your money through Continuous Payment Authority (CPA). Essentially, that means we’re authorised to withdraw the amount payable via direct debit.

All you have to do is make sure there are enough pounds in your bank account.

And to top things off, we offer game-changing repayment flexibility. You can apply to scale your repayment amounts up or down and even take a payment holiday when required.*

Get started with an Abound Open Banking loan

Home improvements. Hospital fees. That bucket-list holiday. Sometimes life brings expensive or unexpected experiences, and you need financial support to cover the costs.

At Abound, we appreciate that your credit score can be far from the full picture - and that it might stand in the way of loan approvals, even if your finances are up to scratch. So, our mission is to equip more people with affordable loans through Open Banking.

We offer all kinds of Open Banking personal loans for up to £10,000. Plus, we take the stress out of your application. To kick things off, get a free quote with our easy online loan calculator.

*fees and conditions apply.