Please note: You should always refer to your loan agreement for exact repayment amounts as they may vary from our results.
Late repayments can cause you serious money problems. See our debt help guides.
What is a personal loan?
A personal loan is when you borrow a fixed amount from a lender and pay it back with interest over a set time period, usually in fixed monthly repayments. They are often used for more personal purchases such as, home renovations, holidays or weddings.
Lenders consider factors like your income, credit score and borrowing history when deciding whether to offer you a loan and what interest rate to charge (learn more about APR).
The main advantage of a loan is you get cash upfront, but are still able to spread the cost of a big purchase over time.
What should I look for in a personal loan?
There are a few key features you’ll want to consider when comparing loans. To find a better deal, ask yourself these questions:
- 1. Eligibility criteria. Do I qualify for this loan? Don’t waste time researching a loan if you don’t meet the requirements. Most – if not all – lenders offer a free eligibility checker.
- 2. Loan amount. Can I borrow the amount I need? Will you be able to take out the amount you need and afford to pay it back in a reasonable amount of time? If not, you might want to look elsewhere or consider other borrowing options.
- 3. Interest rate. Does it have a competitive interest rate? Is it fixed or variable? Most unsecured personal loans charge a fixed rate of interest, meaning your monthly repayments will stay the same throughout the loan. Remember that the advertised rate is not necessarily the rate that the lender will offer you. Lenders will look at factors like your credit score, borrowing history, income and expenditure when deciding what rate to offer you.
- 4. Loan term. How long will I have to pay it back? Aim for a loan term that gives you monthly repayments you can afford without being too long. Otherwise, you could wind up paying a lot in interest in the long run.
- 5. Fees. What are the fees? A few lenders will charge an “arrangement” or “set-up” fee.
- 6. Repayment options. Can I make overpayments or repay the loan early? Most lenders will not penalise you for paying back some or all of the loan early, however that doesn’t necessarily mean that doing so will save you money in interest. In many cases, you will be charged one or even two months interest to settle your loan early, so make sure you do your calculations first.
It’s important to remember that every individual’s personal circ*mstances are different and lenders will assess each application based on these. To give some further guidance on which lender might be best for your circ*mstances, our Best Personal Loans guide highlights lenders that are favourable for a variety of different financial circ*mstances and credit scores.
Video: top 3 tips for finding a personal loan
Credit cards vs personal loans?
Wondering if you should just get a credit card? Potentially, yes. However, the answer depends on what you’re buying, how much you’re borrowing and your level of self-discipline!
Credit cards can be a more cost effective option for borrowing sums under £5,000, providing you have the discipline to repay it. Unless you have a good credit score and high income, credit cards typically won’t give you more than £3,000 to £5,000. Above £5,000 and personal loans should be a cheaper option.
Personal loans come in a lump sum and you have a predetermined amount of time to pay them off. By contrast, credit cards are a revolving form of credit. You borrow what you need, when you need it (subject to a card’s monthly limit) and you have to make at least a minimum monthly payment. Credit card interest rates are generally variable, but cards often come with a promotional fixed-rate introductory period.
Using the wrong credit card could cost you more because credit cards tend to have higher rates than personal loans. However, a card with a promotional rate of 0% on purchases could be a smart option, if you can get approved with the credit limit that you need. These types of cards are quite often reserved for those with a good credit score and a positive borrowing history.
Finally consider any other fees (application, monthly or annual account fees), any offers and the length of the application process before settling on a form of credit. And, don’t forget that you’ll pay a charge each time you withdraw cash on a credit card.
What is APR?
The annual percentage rate (APR) provides an annual summary of the cost of a specific loan from a specific lender. It takes into account both interest and any fees that all borrowers will have to pay. If a loan doesn’t come with a product/arrangement/application fee, then usually the interest rate and the APR will be the same (fees that you might incur, like missed payment fees or early redemption fees, aren’t taken into account).
The vast majority of lenders tailor the rates they offer to each applicant. This is known as “risk-based pricing”. If your application for a loan is successful, a lender will make you a loan offer, detailing the actual APR that you’ll receive.
The representative APR is the APR that a lender realistically expects 51% of its customers to receive. The 51% of applicants with the highest credit scores tend to be offered the representative APR, while the other 49% are likely to be offered a higher rate.
For personal loans, the representative APR is relevant but doesn’t tell the whole story. For example, if it’s very low, it probably means you need an excellent credit score to get accepted in the first place; if your credit score is less than perfect, then if you get approved, you’re likely to be offered a higher rate than the advertised one. Interest rates can also vary according to the amount and duration of a loan.
So despite the fact that APRs and representative APRs are designed to help consumers, they can feel like a bit of a minefield. Thankfully, most lenders offer a “soft search” or “eligibility checker” facility that you can use before applying for a loan. These facilities generally won’t impact your credit score.
Better still, services like Finder offer a free eligibility checker, that runs a soft search with multiple lenders in one go.
How can I improve my chances of being approved?
Unfortunately, there is no way to guarantee you’re approved for a personal loan. But, giving yourself a better chance at getting approved starts with meeting the eligibility criteria set by the lender. To better your chances of being approved, keep the following in mind:
- Establish your borrowing capacity. What repayments can you afford? Lenders will use a variety of criteria to decide how much you’re eligible to borrow, but you need to know how much you can afford to repay. If you’ve done your sums and are sure you can afford a particular amount each month, chances are a lender will reach the same conclusion.
- Building a good banking history. Keep your accounts in good standing to build a positive relationship with your banks, even if you don’t plan on borrowing from them.
- Keep your credit rating in good standing. Make sure you keep track of all your payments, from credit cards to utility bills, because any arrears, debts, or missed payments will affect your ability to access credit. Don’t make too many applications for credit, and only apply for products you’re confident you’ll be approved for. Multiple applications for credit in a short space of time can signal financial difficulties to a potential lender.
- Keep track of your saving goals. If you manage to contribute to your savings regularly, it shows lenders that you are likely to manage ongoing loan repayments.
What will I need in order to apply?
In order to lend responsibly, lenders will need:
- Proof of identification.
- Proof of address.
- Proof of affordability.
When you apply for a personal loan online, many lenders can verify your identity and financial information electronically through a credit reference agency (CRA) like Experian. Instead of having to produce identification documents or bank statements, you may be asked to answer some security questions that only you should know. This process typically does not impact your credit score, although the subsequent full credit check that usually takes place after you submit your application may cause a slight, short-term dip in your score.
If you choose to apply for a personal loan at a physical branch, you’ll be required to adhere to traditional guidelines. This means you’ll need to provide appropriate documents to establish your identity and address separately. You may also be asked to prove your income, typically with the last two months’ worth of payslips and/or bank statements, or, if you’re self-employed, a document from HMRC verifying your most recent tax return calculation. However, the lender will still conduct a credit check and affordability assessment using a CRA.
The documents needed to apply for a personal loan
Personal loan cost comparison
Loan amount: £5,000
- Loan term: 3 years
- Interest rate: 19.9%
- Monthly repayment: £181
- Total interest: £1,533
Loan amount: £5,000
- Loan term: 3 years
- Interest rate: 29.3%
- Monthly repayment: £201
- Total interest: £2,250
How to compare personal loans with Finder
Use our free eligibility checker to discover the loans that you are most likely to be accepted for, without hurting your credit score.
1. Tell us about yourself
Let us know how much you want to borrow, what you want the loan for and a little about yourself. Remember, this is not an application, so it will not affect your credit score.
2. We search the market for you
We search a large panel of lenders to find you the loans that you’re most likely to be accepted for.
3. See your eligibility before you apply
Sort your personalised results by your chance of approval and compare the best loan rates available to you.
Finder’s top 5 tips for taking out a personal loan
- Compare lenders. It can be tempting just to take out a loan with your current bank, rather than shopping around. But more often than not, it pays to compare personal loans. And it’s easy! Use finder’s personal loan comparison tables to estimate the costs with multiple providers, without running a credit check.
- Consider if a personal loan is definitely the right option for you. Personal loans can offer a highly-structured form of lending, which can be a real advantage if you have an exact amount you want to borrow. You know when you’ll have paid off the loan, and, if the rate is fixed, you know exactly what you’ll pay. However, there are situations when the flexibility of a credit card or an overdraft could make those more suitable options. Similarly, if you have a mortgage, a secured loan may have a lower rate of interest. There are some important questions to ask yourself however. If you take out a credit card, will you just end up spending more, and only making the minimum monthly payments? And by remortgaging, could you end up borrowing more than you need, for much longer than you need it?
- Check the early-repayment terms. As well as offering peace of mind, by paying your loan off early you can save money on interest. However many lenders will charge a fee, for example one month’s interest, if you wish to repay your loan early – particularly if they’re offering a highly competitive rate. For the lender, it’s a way of guaranteeing a minimum income from the product. If you think that there’s a strong chance you’ll repay the loan early, then a product with no early-repayment fees could potentially be more suitable than a product with high early-repayment fees and a slightly better rate.
- Look at the rate bands. Many lenders offer better rates when you borrow larger sums, or when you borrow over longer periods. Sometimes, borrowing fractionally more can put you into the next rate band, and save you a packet in interest. However keep in mind, you should never borrow more than you can afford to pay back.
- Understand the risks and check the small print. You should only ever apply for a loan if you’re confident you’re eligible and you’re certain you can meet the repayment terms. If you’re worried about slipping into a habit of spending more than you have, then consider saving the money first, before making that expenditure, rather than borrowing the money.
What about a broker?
As long as you bear in mind that it’s unlikely to check the whole market, but instead a subsection of lenders with whom it has an arrangement, then a broker can take the strain out of finding a competitive personal loan deal. Brokers find the most competitive rate available to you from their panel of lenders, taking into account your individual circ*mstances. Normally this service is free because the broker will earn a referral fee from the lender.
Some brokers and “matching services” can now run soft searches with a range of lenders in seconds, meaning that without any impact on your credit score you’ll be able to get realistic rate quotes for loans you’re likely to be approved for. This can be a smart way to avoid disappointment, protect your credit score and focus on lenders likely to approve you.
What can I use a personal loan for?
A better question is: What can’t you use a personal loan for? This type of financing can cover almost any large expense or even consolidate your debt. Lenders will normally ask you what you need the money for, during the application process. Here are some common reasons for taking out a personal loan:
- Buying a new car
- Paying for a wedding
- Home improvement
- Buying furniture
- Paying for a holiday
- Consolidating debt
There are, however, situations when a personal loan isn’t suitable. Here are a few examples:
- A deposit on a property
- Gambling
- Business purposes
- Share dealing
How quickly can I get a personal loan?
There’s no doubt that loan companies are getting faster. Even the big banks have had to up their game to keep up with specialist online direct lenders. But it’s still fairly normal to have to wait a day or more to drawdown your loan.
If you apply for a loan on a weekday during working hours, that usually cuts the time it takes to get the funds in your account. Similarly, if you apply for a loan from the bank you hold a current account with, there’s a good chance it would be in your account within minutes, however you can almost always save money by comparing rates and shopping around.
Bear in mind that even if a lender offers an instant decision on a personal loan, this doesn’t mean that the money will be in your account instantly. Having said that, these lenders tend to be pretty effective at transferring the money quickly, too. It’s not uncommon for the money to be in your account on the same working day as your application if your application is approved.
Can I have more than 1 personal loan at once?
Yes, it’s perfectly possible to take out more than one loan, with either your current lender or a second lender. However, different lenders have different policies, and each application for credit will be assessed on its own merit.
Alternatively you have the option of going to a second lender to apply for another loan.
If you want to borrow more from your current lender, then there’s a good chance they’ll insist that you terminate your first loan (which could involve a fee or having to pay one-to-two months’ interest beyond the date when you close the loan) and take out a new, bigger loan instead.
For example, the AA does not add on additional funds to a loan, however if you wish to borrow more money you can settle your existing loan and reapply for a new one.
Ultimately, lenders want to lend, and the more money they lend, the more money they make in interest. Naturally they’ll want to take care not to expose themselves to undue risk (they want to be sure they’ll get their money back) and they also have a responsibility to ensure that they are lending responsibly.
Before running multiple loans concurrently, you should ask yourself if it’s the most sensible route to ultimately getting free of the debt. In some situations, a realistic debt consolidation plan or a getting advice for debt that’s become overwhelming could be a smarter choice.
3 things to consider before getting another loan
- You might make it harder to borrow in the future. Taking on debt can be good for your credit if done responsibly. But when you apply for a loan it doesn’t look good if you have too many inquiries on your credit report or are in a great deal of debt already.
- It might not be the financial help you need. Regularly taking out personal loans to cover personal expenses could be an indicator that you’re stuck in a debt cycle. In this situation, you might benefit from other financial services like debt relief. There’s a chance that taking out another personal loan might only dig you deeper into debt.
- How much you owe each month will increase. Multiple loans means multiple monthly repayments. While lenders generally won’t approve you for a loan that you can’t afford, if your financial situation changes, it could be more difficult to make these repayments than if you took out a new, larger loan with a longer term.
Frequently asked questions
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You can typically borrow between £1,000 and £25,000, subject to approval. Some lenders offer loans up to £50,000, but that’s normally only to existing customers, and again is subject to the lender’s assessment of your circ*mstances.
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Consolidation on its own is not a priority. If you’re in debt, your aim is to simply pay it off as quickly as possible at the lowest cost. Debt consolidation loans are often sold as making repayments “manageable” and while this is true, you still need to aim for the cheapest repayment package. A debt consolidation loan is not necessarily the most effective way to do that.
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Lenders look at your credit history to determine how much of a risk they would be taking in offering you a loan. If you’ve only recently arrived in the UK then there will be less information for a potential lender to assess.
Getting credit with little or no UK credit history can be tricky. What’s more, lenders may charge a higher rate of interest on any credit that they do offer you.
As soon as you’ve found a place to live in the UK you should get yourself on the electoral roll (visit your local council’s website to register) and start building a credit history. Opening a UK current account can be another step towards building a credit history – demonstrating that you can keep up direct debits and regular utility payments will help show that you are more likely to keep up repayments on a loan.
Remember: don’t just apply for loan after loan the moment you arrive in the UK. This could actually harm your chances of securing credit – multiple rejections could be seen by a potential lender as a sign of financial difficulties.
If you’re struggling to get approved for a personal loan, then you may wish to consider a credit builder credit card. You can apply for a smaller amount of credit (typically £250-£1000) and after as little as 4 months have your credit limit reviewed.
The UK government also offers a Refugee Integration Loan to refugees who have been given humanitarian protection. Find out more at www.gov.uk/refugee-integration-loan
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If you’re self-employed and you require a personal loan, you may feel a bit let down by some new eligibility requirements which have been put in place since the financial crisis and the abolishment of “self-certification loans”. However, there are options available from both traditional and non-traditional lenders offering personal loans to self-employed individuals.
The main challenge when applying for a personal loan when you are self-employed is proving your income, and that it’s sustainable. You will likely face lots of questions, so to avoid delays it’s important to be prepared.
It’s common for lenders to request financial statements and tax returns (HMRC SA302) for the last two years. Lenders will also want to see your bank statements showing the payments of income noted in your SA302 tax form.
If you are contracting it may be necessary to show proof that contracts have been renewed over a 1-2 year period. If you are just starting out then you will need to be able to demonstrate how employable you are, for example your years of experience in an industry or your relevant qualifications.
If you can’t provide the required evidence of income and sustainability then you may have to consider a non-traditional lender, who may offer more options for you, but often this will come at the cost of a higher interest rate.
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The good news is that there are now plenty of specialist lenders who have decided to focus on “non-standard” lending, such as loans for bad credit. The bad news is that these lenders tend to charge higher rates. If you have a friend or relative who would be willing to guarantee your loan (i.e. promising to step in and clear the loan if you fail to do so), then you could consider a guarantor loan.
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Most lenders offer different interest rates to borrowers depending on how risky they are to lend to. This is what’s called “risk-based pricing”. All responsible lenders will run a full credit search before approving an application, but the vast majority of lenders now offer a “soft search” or “eligibility checker” facility. These allow borrowers to get a good idea of the likelihood that they would be approved for a loan, plus an estimate of the rate they would be offered, without their credit score being affected.
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An interest rate is the amount you’re charged for borrowing money. The interest rate you’re offered by providers when applying for a loan depends on your credit history, and it also varies across different lenders. In May 2023, the average interest rate for a £5,000 loan in the UK was 10.15%. To learn more about personal loan statistics, you can read our guide.
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As with any online service, you do expose yourself to potential fraud if you’re not being vigilant. Our experts have put together a guide of our top tips on how to spot a personal loan scam.
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Yes you can use a personal loan to finance your holiday – these are called “holiday loans”. Holiday loans are essentially just a regular unsecured personal loan used to pay for a holiday.
Will you be approved?
Check your personalised rates and likelihood of acceptance.
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We show offers we can track - that's not every product on the market...yet. Unless we've said otherwise, products are in no particular order. The terms "best", "top", "cheap" (and variations of these) aren't ratings, though we always explain what's great about a product when we highlight it. This is subject to our terms of use. When you make major financial decisions, consider getting independent financial advice. Always consider your own circ*mstances when you compare products so you get what's right for you.
As an expert and enthusiast, I have access to a wide range of information on various topics, including personal loans and related concepts. I can provide you with information based on my knowledge and the search results I have access to. However, please note that the information I provide should not replace professional financial advice, and it's always a good idea to consult with a financial advisor or lender for specific guidance.
What is a personal loan?
A personal loan is a type of loan where you borrow a fixed amount of money from a lender and repay it over a set time period, usually in fixed monthly installments. Personal loans are often used for personal expenses such as home renovations, holidays, or weddings. Lenders consider factors such as your income, credit score, and borrowing history when deciding whether to offer you a loan and what interest rate to charge.
What should I look for in a personal loan?
When comparing personal loans, there are several key features to consider:
- Eligibility criteria: Check if you meet the requirements for the loan before spending time researching it. Most lenders offer a free eligibility checker.
- Loan amount: Ensure that you can borrow the amount you need and afford to repay it within a reasonable time frame.
- Interest rate: Compare the interest rates offered by different lenders. Most unsecured personal loans have a fixed interest rate, meaning your monthly repayments will remain the same throughout the loan term. However, the advertised rate may not be the rate offered to you, as lenders consider factors such as your credit score, borrowing history, income, and expenditure.
- Loan term: Consider the length of time you have to repay the loan. Aim for a loan term that provides affordable monthly repayments without being too long, as longer terms may result in paying more interest in the long run.
- Fees: Be aware of any fees associated with the loan, such as arrangement or set-up fees.
- Repayment options: Check if you can make overpayments or repay the loan early without penalties. While most lenders do not penalize early repayment, it's important to calculate if doing so will save you money in interest.
Remember that every individual's personal circ*mstances are different, and lenders assess each application based on these factors. It can be helpful to consult resources like the Best Personal Loans guide to find lenders that are favorable for different financial circ*mstances and credit scores.
Credit cards vs personal loans?
When deciding between a credit card and a personal loan, several factors come into play. Credit cards can be a more cost-effective option for borrowing smaller sums under £5,000, provided you have the discipline to repay the balance. However, personal loans are often a cheaper option for borrowing larger sums above £5,000.
Credit cards offer a revolving form of credit, allowing you to borrow what you need when you need it, subject to a monthly limit. They typically have variable interest rates, but some cards may offer a promotional fixed-rate introductory period. On the other hand, personal loans provide a lump sum with a predetermined time to pay it off. Personal loans often have fixed interest rates, which can be lower than credit card rates.
It's important to consider your specific borrowing needs, credit score, income, and level of self-discipline when deciding between a credit card and a personal loan. Additionally, be aware of any fees, offers, and the length of the application process before choosing a form of credit.
What is APR?
APR stands for Annual Percentage Rate. It provides an annual summary of the cost of a specific loan from a specific lender, taking into account both the interest rate and any fees that borrowers will have to pay. The APR helps borrowers compare the costs of different loans. If a loan does not have any additional fees, the interest rate and APR will be the same. However, fees like missed payment fees or early redemption fees are not included in the APR calculation.
It's important to note that lenders tailor the rates they offer to each applicant based on factors such as credit history and risk assessment. The representative APR is the rate that a lender expects 51% of its customers to receive. The other 49% may be offered a higher rate based on their credit scores. For personal loans, the representative APR is relevant but doesn't tell the whole story, as interest rates can vary based on the loan amount and duration.
How can I improve my chances of being approved for a personal loan?
While there is no guaranteed way to be approved for a personal loan, there are steps you can take to increase your chances:
- Establish your borrowing capacity: Determine how much you can afford to repay each month and ensure that your loan application aligns with your financial situation.
- Build a good banking history: Maintain good standing with your bank accounts to build a positive relationship with lenders, even if you don't plan on borrowing from them.
- Maintain a good credit rating: Make all your payments on time, including credit cards and utility bills. Avoid making too many credit applications and only apply for products you're confident you'll be approved for, as multiple applications within a short period can signal financial difficulties to lenders.
- Track your saving goals: Regularly contribute to your savings, demonstrating to lenders that you can manage ongoing loan repayments.
These steps can help improve your overall financial profile and increase your chances of being approved for a personal loan.
What documents are needed to apply for a personal loan?
When applying for a personal loan, lenders typically require the following documents:
- Proof of identification: This can include a valid passport, driver's license, or national ID card.
- Proof of address: Lenders may ask for documents such as utility bills, bank statements, or a tenancy agreement to verify your address.
- Proof of affordability: Lenders need to assess your ability to repay the loan. This may involve providing financial statements, tax returns, payslips, or bank statements to demonstrate your income and financial stability.
The specific requirements may vary depending on the lender and the application process. Some lenders may be able to verify your identity and financial information electronically through credit reference agencies, while others may require physical documents.
Can I have more than one personal loan at once?
Yes, it is possible to have more than one personal loan at once. However, different lenders have different policies, and each loan application will be assessed individually based on your financial circ*mstances. If you want to borrow more from your current lender, they may require you to terminate your existing loan and take out a new, larger loan instead. It's important to consider your ability to manage multiple loan repayments and ensure that it aligns with your financial goals.
How quickly can I get a personal loan?
The time it takes to receive funds from a personal loan can vary depending on the lender and the application process. Loan companies are becoming faster in processing applications, and some lenders offer instant decisions. However, even with an instant decision, it does not guarantee that the money will be in your account instantly. The transfer of funds can take additional time, but many lenders aim to transfer the money on the same working day if the application is approved.
What can I use a personal loan for?
A personal loan can be used for various purposes, including but not limited to:
- Buying a new car
- Paying for a wedding
- Home improvement
- Buying furniture
- Paying for a holiday
- Consolidating debt
However, it's important to note that personal loans may not be suitable for certain purposes, such as a deposit on a property, gambling, business purposes, or share dealing.
These are some of the key concepts and information related to personal loans based on the provided article. Remember to consult with a financial advisor or lender for personalized advice and guidance.
