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Should I take out a £4,000 loan?

Perhaps you’re planning a kitchen makeover, helping out with a wedding or putting a deposit down on a new car. Whatever your reason, a £4,000 loan could help you cover the cost.

But don’t rush into a decision. To get the right loan for you, you’ll need to explore your options and be sure you can afford the repayments each month.

What types of £4,000 loans are there?

To make sure you find a loan to suit your circumstances, consider the following:

Personal unsecured loans

With a personal unsecured loan, you borrow a fixed amount of money for a fixed length of time without having to put up a valuable asset such as your home as security. Unsecured loans are suitable for smaller amounts, including £4,000. However, if you continually miss repayments and are taken to court, debt collectors may use any assets you own to pay off the outstanding loan, along with any additional charges

But if you continue to miss repayments and are taken to court, debt collectors may use any assets you own to pay off the outstanding loan, along with any additional charges.

Homeowner secured loans

Secured loans are usually for larger amounts of money, although they could be available for £4,000 loans too. While they might offer lower interest rates than an unsecured loan, secured loans rely on using your home as security. If you have problems paying back the loan, you risk losing your home.

Guarantor loans

A guarantor is someone that can repay the loan in case you can’t keep up with repayments yourself. It usually means asking a friend or family member to help – and, ideally, they’ll be financially stable with a healthy credit score.

A guarantor loan could be an easier way to borrow if you have a poor credit score, or if you’ve been unable to get a loan from other lenders by yourself. However, interest rates may be higher.

Find out more about taking out a guarantor loan.

Peer-to-peer loans

Peer-to-peer loans allow you to borrow money from individuals, instead of a bank or other traditional lenders. You could find competitive loan rates, depending on your credit history.

Compare the Market Limited acts as a credit broker, not a lender. To apply you must be a UK resident aged 18 or over. Credit is subject to status and eligibility.

Did you know?

If you’re thinking of taking out a bit more than £4,000 – perhaps closer to £4,950 – it could be worth checking if a loan of £5,000 would be cheaper overall.

This is because loans of a larger size may offer lower interest rates. However, work out all the costs carefully to be sure you can afford the monthly payments.

Loan calculator

If you’re thinking about taking out a loan, use our loans calculator to work out how much you might be able to afford to borrow and how much it’ll cost each month.

Loan calculator

What to consider when choosing a £4,000 loan

If you're weighing up the right loan for you, here‘s what you need to take into account:

1. APR

The annual percentage rate (APR) shows the total amount you’ll pay for your loan over a year. It includes interest and any other standard charges added to the loan.

Be aware that you might not get the advertised APR. It’s often ‘representative’ and only needs to be offered to 51% of customers – typically those with the best credit rating. If your credit rating isn‘t in great shape, the interest rate you’re offered might be higher.

2. The total cost of the loan

Spreading your £4,000 loan over a longer period – up to five years, for example – can lead to lower monthly repayments. But it could cost you more overall because you’ll be paying interest for longer. Ideally, you’ll aim to pay off the loan as quickly as possible to avoid racking up interest.

3. Monthly repayments

Make sure you work out an affordable repayment plan. There’s no point trying to repay the loan over a shorter length of time if you’ll struggle to meet the payment each month.

4. Additional fees

Check for any administration fees you may be asked to pay to set up the loan. These are called arrangement fees and are included in the total cost.

How do I apply for a £4,000 loan?

You can apply for most loans over the phone, in person at your lender’s local branch or online via the lender’s website or app. Peer-to-peer loans are only available online.

When you apply for a loan, the lender will carry out a hard credit check, which leaves a mark on your credit file.

Before you apply, use our eligibility checker to see which loans you’re most likely to be accepted for and how much you could borrow. It’s a soft search that doesn’t affect your credit score in any way.

Can I get a £4,000 loan with bad credit?

It could be possible to get a loan for £4,000 if your credit rating is poor, although it might be more difficult.

In fact, a bad credit loan could help build your credit score if you make your repayments on time each month. However, you’re likely to face higher interest rates.

Another option is a credit building credit card. Although your credit limit won’t be as high as £4,000, regularly paying off your balance could help improve your credit score over time.

Can I use a £4,000 loan to pay off other debts?

If you’re paying high rates of interest on existing debts elsewhere – such as on credit card or store card debts – you could bring them all together into a debt consolidation loan.

This way you’d have just one monthly payment to make, and you could find a loan with a lower interest rate than the debts you already have.

However, it’s still a debt – and if the new loan lasts longer than the old debt, you could end up paying more interest overall.

Also, it might not be right for you if you’re likely to be tempted to start spending again on the credit cards you pay off.

The last thing you want is to build up more debt on top of what you already owe.

Compare debt consolidation loans

Are there other ways to borrow £4,000?

If you want to borrow £4,000 without taking out a loan, you might want to consider a:

0% purchase credit card – it allows you to make purchases without having to pay any interest for an agreed period, usually a number of months. Make sure you pay off the full balance before the 0% period ends to avoid interest charges on the remaining balance.

0% balance transfer credit card – it allows you to move your existing credit card debts onto one card with 0% interest for a limited period. Again, take steps to pay off what you owe before the interest-free period ends.

Money transfer credit card – this lets you transfer money from a credit card into your bank current account without the need for a loan. To avoid interest, you’d need to find a 0% interest deal but there may also be a transfer fee to pay – usually around 1-5%.

Top tips for taking out a loan

Before you apply, check out your credit score to make sure it’s in good shape.
Remember the golden rule: borrow as little as possible and pay it back as quickly as possible.
Work out a sensible budget before you apply for a loan to make sure you can afford the monthly repayments.
Be careful of borrowing to pay off existing debts – it could get you into more debt in the longer term.
Examine different loans and compare what’s on offer – don’t rush in and settle for the first rate you’re offered.

How to compare £4,000 loans

With the amount of loan providers out there, finding a £4,000 loan that works best for you can be time-consuming.

To find out which loans you could be eligible for, you can use our comparison service. Just answer a few questions and then, if you’re eligible, compare loan providers and products to find the right deal.

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Frequently asked questions

Can I pay off my £4,000 loan early?

Your lender must allow you to pay off your loan early, but they might charge an early repayment charge.

If your loan agreement is covered by the Consumer Credit Act, you won’t need to pay an early repayment charge on a £4,000 loan. Under the directive, you can make early repayments up to £8,000 a year without penalty.

Can I use a £4,000 loan to buy a car?

Yes, you could take out a £4,000 loan to buy a car. It also means you’ll own your car from the outset.

What credit score rating do I need to borrow £4k?

To borrow £4,000, you’ll ideally need a good credit score, especially if you want a lower interest rate.

The three main credit references agencies all have different ratings for what they consider a good credit score, but it’s down to the lender to decide whether to accept or refuse your loan application.

What is a soft search?

A soft search is sometimes known as a soft credit search or a soft credit check. It’s a way of seeing how likely you are to be accepted for a loan.

Checking to see if you’re eligible to apply for a £4,000 loan (or any loan) won’t affect your credit score.

Use our eligibility checker to see which loans you might be accepted for.

This article is written by a Compare the Market expert, backed by data and enhanced by AI. Find out how we ensure accuracy and quality in our Editorial Guidelines.