Personal loans

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**Correct as of June, 2022.

What is a personal loan?

A personal loan lets you borrow an amount of money from a lender, which you usually pay back in fixed monthly instalments within the timeframe you’ve agreed to. Most banks and building societies offer personal loans up to £25,000.

A loan can be a good option if you’re looking to buy a new car or make improvements to your home as it means you can spread the cost over several months or years. In return for letting you borrow the money, the lender will charge you interest on the loan, so you end up repaying the total amount you borrowed plus interest.

How do personal loans work?

Personal loans are sometimes called “unsecured” loans because they don’t require you to put up something valuable as collateral. This means you don’t need to risk your car or home to borrow the money.

When you apply for a loan, the lender will run a credit check on you to decide whether you’re eligible for the loan. Lenders run credit checks because they want reassurance that you’re responsible enough to borrow and pay back the money you’re asking for.

If you’re approved, you’ll receive the money as a lump sum paid directly into your bank account. You’ll then need to repay it (with interest) in monthly instalments over the loan term (how long you have the loan for). This can vary between one and 10 years.

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.

Personal loan eligibility checker and calculator

Before you start applying, you can search for loans you’re likely to be accepted for with our free eligibility checker. This is only a ‘soft check’ so won’t impact your credit score in any way.

Try our eligibility checker

We can also give you an idea of how much you could borrow and how much your monthly repayments would be with our loan calculator.

Try our loan calculator

Advantages and disadvantages of personal loans

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

Benefits of a personal loan:

  • Use the money for whatever you like – you could pay for home improvements, a wedding, a car or medical care, 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 manage your 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 it’s important to check carefully. Also 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, while some credit card providers offer interest-free deals for an introductory period. This can make a personal loan more expensive overall.
  • Long-term commitment – if your income fluctuates or you were to lose your job after taking out the loan, you could 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 loan products. Make sure you understand the total cost of the loan before agreeing to the terms.
  • Penalties if you default – if you fail to make your repayments on time, this will damage your credit score and 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 loans may only be available for existing customers.

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.

Consider how much money you need

Knowing how much you need to borrow will help you decide where best to find that extra cash injection.

  • 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 not, it could be worth looking at alternative current accounts that offer this facility.
  • Credit cards with 0% interest on purchases could be worth a look, particularly if you need to buy something specific. As long as you pay back what you owe within the interest-free period (and make at least the minimum monthly payments on time), you can be smug in the knowledge that the credit hasn’t cost you a single penny extra.

If you need a larger sum of money, a personal loan could be the answer. You can usually opt to borrow a minimum of £1,000, with upper limits depending on the lender. Most will lend you up to £25,000, although some may go as high as £50,000.

The best APRs (annual percentage rates) – the amount of interest, plus any fees, you pay on top of your loan – are reserved for customers with the best credit ratings. That’s why, when you apply for a loan, you might not get the advertised APR, unless it’s labelled as a guaranteed APR.

How can I find the best personal loan for me?

A good personal loan is one with low interest rates and an affordable monthly repayment, which will vary depending on your circumstances.

If you think you’ll want to repay the loan early, look for one that won’t involve paying a penalty charge as a result.

The loan rate you’re offered could depend on the length of term you’re looking to borrow on, the amount you’re borrowing, as well as your credit score and history.

To get an idea of how loan rates work, here’s a representative example:

  • Loan amount: £10,000
  • Representative APR (annual percentage rate): 2.9%
  • Loan term: five years (60 months)
  • Monthly repayment amount: £179.07
  • Total amount repaid: £10,744.20
  • Credit available subject to status

Of course, this is just a representative example. For the best results for you, start by comparing personal loans using our eligibility checker to give you an idea of what’s available.

Be aware that you’re usually offered lower loan rates for longer terms. While the monthly repayments will be lower, don’t assume this is the best deal. You’ll be paying that interest for a longer period, which usually means you’ll pay more over the full loan period. 

What are the alternatives to personal loans?

There are three main alternatives to personal loans:

Secured loans

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, also known as a homeowner loan. For this type of loan you’ll need to offer something valuable as collateral, with common examples being your home or car. If you’re unable to meet the terms of the loan, your lender will be able to recover the asset you put up as collateral. 

Because secured loans are less risky for lenders, they tend to offer lower interest rates, longer terms and higher borrowing limits.

Credit cards

If you already have or are eligible to apply for a 0% interest credit card, it can be a useful alternative to a personal loan. With no interest charged for a set period (watch out for any agreed limits), you might be able to borrow what you need and repay it later with no added charge. Make sure to clear your balance before the 0% rate ends to avoid being moved on to a higher interest rate.

Overdraft facility

Using your arranged overdraft on your current account could be a solution if you only need to borrow a small amount that you’re confident you can pay back quickly. The interest rates charged on overdrafts can be very high when compared to other lending options, so you should avoid being in your overdraft for a long period.

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 one, you’ll go 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.
Author image Rob Silvey

What our expert says...

There are many reasons why people take out personal loans, and in some cases it 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.”

- Rob Silvey, Finances expert

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Frequently asked questions

How much does a personal loan cost?

This depends on how much you want to borrow, the APR and how long you’ll 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.

Is a personal loan better than using a credit card?

A personal loan can be a cheaper way to borrow money than a credit card if you’re looking to borrow a large lump sum over a set period of time. Personal loans typically let you borrow up to £25,000, while credit cards don’t normally offer more than £5,000. For smaller amounts, it’s worth considering a 0% credit card because this lets you spend interest-free for several months.

A big advantage of personal loans is that repayments are usually fixed, unlike credit cards, making it easier to manage your budget.

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 future.

If you think you’re going to miss a payment, contact your lender as soon as possible. Don’t wait for it to happen before taking action. The sooner you discuss your options with your lender, the more flexible they may be.

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

You may be able to get a personal loan with a poor credit score, but it will affect the amount 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, as the lender will be more confident that you’ll be able to repay it as promised.

Read our guide to loans if you have a poor credit history.

How long can I take a personal loan out for?

Personal loan terms are usually between one and five years. While terms can vary among different loan providers, they’re also reliant upon your financial circumstances. Depending on your application and the results of your credit check, lenders may offer you a longer or shorter loan term. Some personal loan terms can stretch to 10 years, but this is rare. Remember, though, the longer the loan term, the more you’ll be paying in interest, even if the monthly repayments are lower.

What’s the difference between a secured and unsecured loan?

Unsecured loans don’t require you to offer any collateral. You’re allowed to borrow money on the basis that you agree to pay back your unsecured loan within the timeframe you’ve promised.

A secured loan means that you’re borrowing money using your assets as security – usually your house or car. This means that if you can’t pay back your loan, the lender can take possession of your asset.

What is a credit check and how will it affect me?

A credit check helps lenders find out about your credit history. You’ll need to provide the lender with information, including your address history and bank details, so they can make the check. This helps them assess whether you’ll be able to make the loan repayments. They can only check if you give them permission.

Soft credit checks – for example, when you’re comparing loans – don’t affect your credit score.

Hard credit checks – for example, when a bank looks at your full credit report when assessing you for a loan – are recorded.

Too many hard credit checks in a short space of time can lower your credit score. This is because it suggests you’ve been turned down for multiple loans or you’re trying to borrow more credit than you can afford from a range of different lenders.

What will lenders check?

Lenders will check your identity and address, and use any information that you’ve given in your application – including your income and spending habits – to help decide whether or not to offer you a loan. They’ll also review anything they know about you already, if you’ve previously had dealings with them.

Can you be pre-approved for a personal loan?

Yes, being pre-approved for a loan means your loan application will definitely 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 in about 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 personally, or you need more than the typical £25,000 limit, you might want to consider a secured loan. You can borrow up to £100,000 with a secured loan, but you’ll need to put something up as collateral, like your home. Think carefully before taking out this type of loan because if you miss repayments, the lender can seize the asset to repay what you owe.

Should I consider a peer-to-peer personal loan?

A peer-to-peer loan is borrowing money from another person or group of people, rather than a traditional lender like a bank or building society. You can find peer-to-peer lenders on dedicated websites. Interest rates vary and can be affected by your credit score, but peer-to-peer lending can sometimes offer lower rates compared to traditional lenders.

Other than that, peer-to-peer loans work in a similar way to standard personal loans. You’ll repay the loan over an agreed period and at a set interest rate. If you miss or make late repayments, you can face extra charges.

What is APR?

The annual percentage rate (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 APR advertised on some personal loans is representative – in other words, it’s just an example. This means not everyone will be offered the APR advertised, although it must be available to at least 51% of successful applicants. If you apply for a loan that advertises a representative rate, you could end up being offered a higher APR.

Other loans will offer a guaranteed rate, meaning that what you see is what you get if your loan application is approved.

Find out more about APR.

What happens if I can’t repay my loan?

If you’re having difficulties repaying your loan, you should 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.

If you’re unable to 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 ahead of schedule, but it might cost you. Some lenders will charge an early repayment fee of around one or two months’ interest. Even though you’ll save on interest payments if you clear the debt early, you’ll need to work out whether it will be worth your while once you take the early repayment fee into account.

Look out for early repayment charges when you’re comparing loans so you know what to expect if you’re in a position to repay what you owe early.

What will happen if UK interest rates change?

Almost all personal loans have a fixed interest rate, so the monthly repayment schedule you’re given when you take out the loan shouldn’t change at any time. This is regardless of what happens to the Bank of England’s base rate.