Compare Personal Loans

What is a personal loan?

A personal loan allows you to borrow a sum of money which you will repay, with interest, over an agreed period of time.

Most personal loans are unsecured, which means you don’t need to put up your house or other property as collateral.

They are available from traditional high street banks, online challenger banks and specialist lenders, and can be used for many different reasons such as home improvements, holidays, weddings, debt consolidation and major purchases like a new car or a new appliance.

Often you will be able to borrow between £1,000 and £25,000, but some providers may be willing to lend you more or less than this. Terms typically range from one to seven years.

» MORE: How to get a loan

Types of loans

The two main types of loan are secured and unsecured. Most personal loans will be unsecured.

Unsecured loans: These loans are not secured against any property. Because this increases the risk for the lender, interest rates can be higher than secured loans and there’s a limit to how much you can borrow.

Examples of unsecured loans include:

• Personal loans: Offered by banks and alternative lenders. The amount you are offered and the term available will depend on your credit score and affordability checks among other factors.
• Peer-to-peer loans: Arranged through online peer-to-peer platforms, these involve members of the public lending to others who need access to funds.
• Short-term loans: These are personal loans offered over short periods of time: usually up to around a year. Loan amounts and terms are limited and interest rates can be high.
• Payday loans: These are extremely short-term loans, which are repayable, usually in one single payment, within days of taking the loan out. High interest rates are commonplace.
• Guarantor loans: Can be offered to those with poor credit ratings who have someone who will commit to repaying a loan if the borrower is unable. Bear in mind that some lenders will require the guarantor to be a homeowner, which could put their property at risk should the borrower default on their loan.

Secured loans: Often used to borrow larger sums of money over a longer period of time. Borrowers will put some property, usually their home, up as security, which reduces the risk for the lender. Secured loans can offer lower interest rates, but they come with more risk for the borrower as the lender could repossess their home if they don’t keep up with repayments.

Examples of secured loans include:

• Homeowner loans: This is the most common form of secured personal loan. They are available only to homeowners who are willing to put the equity they have in their home forward as security for their loan.
• Car finance loans: These loans are taken out against the value of the car you are about to buy. There are various types of car finance deals, but each usually uses the car’s value as security.
• Bridging loans: These loans are often used when purchasing homes as a means of bridging the gap between selling one home and getting a new mortgage on another, for example. They are usually secured against your current home.

Consider all your options before applying to make sure you get the best loan for your situation.

How do personal loans work?

When you apply for a personal loan, the lender will need to know some personal details including your income and employment status, how much you want to borrow and over what length of time. They will review this information and perform a credit check to help them decide whether to lend to you.

If your application is approved, the lender will give you all the necessary information about your loan, including the interest rate, the repayment schedule and any potential fees, so you should make sure you understand these terms before agreeing to the loan.

Once your loan is approved, the money could be in your account relatively quickly, sometimes within a day. You will then be able to use the money as you wish, making your monthly repayments to the lender over the agreed period of time.

You will then be able to use the money as you wish, making your monthly repayments to the lender over the agreed period of time.

What are the advantages and disadvantages of a personal loan?

Like with any credit option, there are pros and cons to taking out a personal loan.

Advantages

• You can pay for something upfront and spread the cost over a longer period of time.
• You can often apply for a loan and receive the money relatively quickly.
• You may be able to borrow money at a lower rate than some other options, for example a credit card.
• Interest rates and monthly repayments will normally be fixed, so the amount you pay each month won’t change.

Disadvantages

• A personal loan can have a higher rate of interest than some other finance options, especially if you have a less-than-* perfect credit score.
• It may not be the best option if you want to borrow only a small sum of money.
• There is a limit to how much you can borrow.
• Missed repayments will harm your credit score.

How can I compare loans?

Our loan comparison table highlights key pieces of information about different loans, which can help you to work out what the best personal loan is for you. Some of the main points you need to consider when choosing a loan are:

• How much you can borrow from a lender.
• The minimum and maximum number of months you have to repay.
• If there are any early repayment charges or any other fees.
• The APR (annual percentage rate).

Most of these are fairly straightforward, but APR can be more complicated to understand.

The APR tells you the total cost of the loan over a year, taking into account the interest on the loan and any compulsory fees.

All lenders have to show a loan’s APR to help consumers compare loans on a like-for-like basis, and to reduce the risk of someone getting caught out by hidden fees.

The APR makes it easier to compare and find the cheapest loans, as you don’t need to work out how different interest rates and lender fees will affect the overall cost of your loan.

What do I need to know before applying for a loan?

Before you get a loan, you need to make sure you understand all the risks involved. You could harm your credit score if a lender rejects your loan application or if you don’t make repayments on time, so only apply for loans if you are confident that you will be successful and that you can comfortably afford the repayments.

Some loan providers will allow you to check your eligibility for a loan without affecting your credit history.

Also think carefully about how much you need to borrow and how long to borrow for.

If you choose to repay the loan over a longer term, your monthly repayments may be smaller but you will pay more in total because of the added interest that will build up. If you choose a shorter term, you will pay less interest overall.

» MORE: Tips for applying for a personal loan

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