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Personal loans

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[1] Correct as of December 2023.

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Personal loan eligibility checker and calculator

Before you apply for a personal loan, you can search for loans you’re likely to be accepted for with our free eligibility checker. It’s a soft credit search so won’t impact your credit score in any way.

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Our loan calculator gives you an idea of how much you could borrow when comparing small loans. It can also tell you how much your monthly repayments would be.

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What is a personal loan?

A personal loan lets you borrow an amount of money from a lender over an agreed period (or term). The amount you borrow, plus interest, is typically paid back in fixed monthly instalments.

Most banks and building societies offer personal loans up to £25,000. A small loan can be a good option if you’re looking to make improvements to your home, for example, as it means you can spread the cost over several months or years.

How do personal loans work?

Personal loans are sometimes called unsecured loans because they don’t require you to put up something valuable, such as your car or home, as collateral. This means you don’t need to risk your car or home to borrow the money. Here’s how small loans work:

  1. Apply for a loan
    Decide how much you want to borrow and for how long. Personal loan terms are usually between one and five years. Some can stretch to 10 years, so they’re not always short-term loans.

    When you apply, the lender will run a credit check to decide whether you’re eligible for the loan.
  2. Receive your money
    If your application is approved, you’ll receive the money as a lump sum directly into your bank account. It usually takes one to two days to arrive.
  3. Pay back your loan
    Start paying back the loan, plus interest, in fixed monthly instalments for the agreed term.

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

Advantages and disadvantages of personal loans

If you’re thinking of taking out a personal loan, here are some pros and cons to weigh up first.

Benefits of a personal loan:

  • You can use the money for whatever you like – you could pay for home improvements, a wedding or a car, for example. You’re not tied to a specific purpose, unlike with car finance.
  • Flexible terms – you can choose how much you want to borrow and how long you’d like to repay it. However, this does depend on your credit score and will affect the amount of interest you’ll have to pay.
  • Fixed interest rates and repayments – with personal loans, interest rates are usually fixed, unlike credit cards. And you’ll repay a fixed amount every month, which makes it easier to budget.
  • Debt consolidation – consider paying off multiple debts with one loan. A single repayment plan could make your debt more manageable by combining multiple monthly payments into one. You may be able to secure a better interest rate too. But bear in mind that extending the length of your loan means you may pay more in the long run.
  • Apply and receive the money quickly – you can often apply online and, if you’re approved, the lender will usually deposit the money into your account within a few days (or even a few hours if you’re already a customer).

Drawbacks of a personal loan:

  • Higher interest rate than some alternatives – personal loans tend to have higher interest rates than loans secured against an asset. So, if you’re looking for cheap loans, this might not be the best option.

    Some credit card providers also offer interest-free deals for an introductory period, making them a potentially cheaper option than a personal loan.
  • Long-term commitment – if your income changes after taking out the loan, you might struggle to keep up with your repayments.
  • Good credit score needed for the best rates – the interest rate advertised may not be the rate you’re offered (unless it’s a guaranteed rate). A poor credit score makes it difficult to qualify for the best personal loans.
  • Penalties if you default – if you fail to make your repayments on time, this will damage your credit score. Your lender may even take legal action to settle unpaid debts.

How much can I borrow with a personal loan?

You can typically borrow between £1,000 and £25,000 with a personal loan. The amount depends on your credit rating and how much you can afford to repay. Some larger, low-interest personal loans may only be available to existing customers.

It’s important to consider the annual percentage rate (APR) when working out how much you can afford to borrow. The APR is the cost of borrowing money over a year. It includes the interest on your loan as well as other charges you may have to pay, like an annual fee.

The lowest APR loans are reserved for customers with the best credit ratings. That’s why, when you apply, you might not get the advertised APR unless it’s labelled as a guaranteed APR.

Only borrow what you actually need. Even though it can be tempting to get a bigger loan because the interest rate is lower the more you borrow, you’ll end up paying more overall.

How can I find the right personal loan for me?

Here’s how to find a personal loan to suit your needs:

  • Shop around – start by comparing personal loans using our eligibility checker to give you an idea of what personal loan rates could be available to you. Our eligibility checker will only show you loans you’re likely to be accepted for.
  • Check your credit score – see if there are any ways to improve your credit score before applying for a loan. Check your credit report for any errors that could affect your chances of acceptance.
  • Check the terms – if you want the option of repaying the loan early, look for one that won’t involve paying a penalty charge.

What are the alternatives to personal loans?

There are five main alternatives to personal loans:

Secured loan

If you’re having trouble getting accepted for a personal loan or you’re looking to borrow more than £25,000, you could try applying for a secured loan. This type of loan is also known as a homeowner loan.

You’ll need to offer an asset such as your home or car as collateral. This could be recovered by the lender if you fail to make the repayments.

Because secured loans are less risky for lenders, they tend to offer:

  • Lower interest rates
  • Longer terms
  • Higher borrowing limits.

Credit cards

If you’re looking to borrow a small amount, a 0% interest credit card could be a useful alternative to a personal loan.

Make sure you can afford to keep up with the minimum monthly repayments and ideally repay the full amount before your 0% period ends.

Overdraft facility

If you only need to borrow a small amount of money for a very short time, consider using an interest-free overdraft, if you have one. If you don’t, it could be worth looking at alternative current accounts that offer this facility.

Peer-to-peer personal loan

Peer-to-peer (P2P) loans work in a similar way to standard personal loans. The difference is you borrow money from another person or group of people, instead of a bank or building society.

You can find P2P lenders on dedicated websites. Interest rates vary and can be affected by your credit score. However, P2P lending can sometimes offer lower interest rates compared to traditional lenders.

Car Finance

Car finance helps people buy a car that they couldn’t normally pay for up front. You’ll typically pay a deposit, followed by monthly repayments (with interest) over a fixed term. This could be from two years up to five years.

There are several different types of car finance available:

  • Hire Purchase (HP) – your loan will be secured against the car, and you’ll split its cost into monthly repayments. Once you’ve made the last repayment, the car will be yours to keep.
  • Personal Contract Purchase (PCP) – this type of agreement is based on the amount of value the car will lose during the loan term (its depreciation) rather than its total value. At the end of the agreement, you can hand the car back, buy it by paying a one-off balloon payment, or use any positive equity as a deposit in a new loan. 

What details do I need to get a personal loan quote?

When you use our eligibility checker, we’ll show you a list of personal loans you might qualify for.

Once you’ve chosen a personal loan, you’ll be taken to the lender’s site to apply. You’ll need to have details including:

  • All the addresses you’ve lived at for the past three years
  • Your email address
  • Your employer’s details, including their address and phone number
  • Details of your monthly income and outgoings
  • Your bank or building society account details.

This helps the lender assess whether you’ll be able to make the loan repayments.

Author image Alex Hasty

What our expert says...

There are many reasons why people take out personal loans and, in some cases, a loan can even help you improve your credit rating. Remember to always check the total cost of the loan and plan a budget to pay it back – only take out the amount you need and pay it back as quickly as you can to reduce the amount of interest.”

- Alex Hasty, Insurance and finance expert

Why use Compare the Market?

Get a personal loan comparison in under 4 minutes[1]

No impact on your credit score when using our eligibility checker

See loans from a wide range of lenders

[1] Correct as of December 2023.

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Frequently asked questions

How much does a personal loan cost?

The cost of a personal loan depends on how much you want to borrow, the APR and how long you take to pay back the money.

Interest rates vary according to the size and length of the loan. A longer loan term may attract lower rates, but the overall cost will be higher than a short-term loan. And borrowers with poor credit scores will be charged higher interest rates. 

What happens if I miss a personal loan repayment?

If you miss a loan repayment, the lender may add extra charges and interest to your loan. Missed payments will also be noted on your credit report, which could harm your credit score and make it harder for you to borrow in the future. It could also lead to the provider taking further legal action, which could result in CCJs or bankruptcy, and you could even lose your home.

If you think you’re going to miss a payment, contact your lender. The sooner you discuss your options, the more flexible the lender may be.

Do I need a good credit score to get a personal loan?

You may be able to get a personal loan with bad credit, but it will affect how much you can borrow and the amount of interest you’ll be charged.

The better your credit score, the better terms you’ll be offered for a personal loan because the lender will be more confident you’ll be able to repay it.

Can you be pre-approved for a personal loan?

Yes, you can be pre-approved for a personal loan. Pre-approval means your loan application will be accepted based on the information you’ve provided. The interest rate, loan amount and term length will all be guaranteed, pending final checks from the lender. Put simply, it’s a ‘what you see is what you get’ deal.

How long will it take to get my money?

With some lenders, you can get your money on the same day as your application if you already hold an account with them. But you can normally expect to get your money within a week.

What can I do if I need to borrow more than they’ll lend?

If you need to borrow more than the lender is willing to offer you, or you need more than the typical £25,000 limit, consider a secured loan. You can borrow £100,000 or even more with a secured loan, but you’ll need to offer something of value as collateral, like your home.

Think carefully before taking out this type of loan. If you miss repayments, the lender can seize the asset you put up as collateral to repay what you owe.

What happens if I can’t repay my loan?

If you’re struggling to repay your loan, contact your lender as soon as possible. They may be able to support you with managing your repayments. Alternatively, contact a debt advice service. They’ll be able to help you organise a debt repayment plan with your lender.

Missed or late payments will go on your credit record and could make it harder for you to borrow in the future. You might also face late-payment fees and in worst case scenarios, your home could be repossessed.

If you can’t reach a compromise with your lender, you’ll probably be charged penalty fees for partial, late or missed repayments.

Can I repay my loan early?

You can pay off your personal loan early, but you might have to pay an early repayment charge (ERC). Early repayment charges vary, but you can usually expect to pay the equivalent of one to two months’ interest.

What will happen if UK interest rates change?

If your personal loan has a fixed interest rate, it won’t be affected if UK interest rates change. Your monthly repayments should remain the same, regardless of what happens to the Bank of England base rate.

The content written in this article is for information purposes only and should not be taken as financial advice. If you require support on the products discussed here, please speak to your bank/lender or seek the advice of an independent professional financial advisor. We also have more information on our Customer Support Hub.

Page last reviewed on 24 JANUARY 2024
by Alex Hasty