Best Loan Rates for Personal Loans

What is a personal loan?

A personal loan is a popular form of unsecured borrowing. It allows you to borrow a lump sum and pay it back in fixed monthly instalments, with interest, over an agreed number of months or years.

Because personal loans are unsecured, you don’t need to put forward your home or any other item of value as security, unlike secured loans which require some kind of collateral.

You can usually borrow between £1,000 and £25,000 with a personal loan and repay it over a term of one to seven years. However, depending on the lender and your situation, it may be possible to borrow more or less than this over a shorter or longer period.

There are many reasons why someone may take out a personal loan. Some common uses include to:

• buy a new car
• pay for home improvements
• pay for a wedding or other special event
• pay for a holiday
• cover any unexpected expenses, such as emergency repairs
• consolidate existing debts. Think carefully about the risks before taking out a loan for debt consolidation.

You can’t typically get a loan for investing, gambling, paying for a house deposit or any illegal activities.

What is the difference between secured and unsecured loans?

Loans can be secured or unsecured. Unsecured loans don’t require any form of collateral, or security, and your eligibility is determined by factors including your credit history and financial circumstances.

By contrast, secured loans require you to put forward a high-value asset, such as your home, as collateral. This can help borrowers to access larger sums at lower interest rates, but the lender can repossess your asset if you fail to repay the loan.

See more in our guide on secured vs unsecured loans.

How does a personal loan work?

You can apply for most personal loans online, although some lenders may also allow you to apply for a loan via mobile app, in branch or over the phone, if you prefer.

When you apply, you need to provide the lender with your personal details, as well as information about your income, expenditure and employment status, for example. Based on this information, lenders will assess your affordability and run a credit check to decide whether to approve your application.

Your credit and financial history will also influence the interest rate the lender charges.

Once you’ve applied for a loan, been approved and received your funds, you can spend the loan as you choose, making sure you repay it as specified in your agreement. The monthly payments are usually fixed and include the capital you borrowed as well as the interest charged by the lender.

To avoid accidentally forgetting to make a payment, it can be useful to set up a Direct Debit so the repayments come out of your account automatically each month.

How much can I borrow with a personal loan?

Many lenders will allow you to borrow between £1,000 and £25,000 with a personal loan. However, it may be possible to borrow more or less than this, depending on the lender and your individual situation.

Some lenders offer personal loans of up to £50,000, but you may need to be an existing customer to qualify.

Lenders will look at your credit history and overall financial situation to decide how much you can afford to repay, and so how much they are willing to lend to you.

What are the eligibility requirements for a personal loan?

Eligibility requirements for a personal loan differ between lenders. However, as a minimum, you will usually need to be a UK resident aged 18 or over to qualify for a loan.

Some lenders may only offer loans to those aged 21 or over, and some loans may only be available if you have a current account with the provider. Lenders will also typically set minimum income requirements.

Before applying for a loan, check the individual eligibility criteria of each lender. If you meet the basic criteria, you can then see if you qualify for a loan (without affecting your credit score) by using an eligibility checker.

Can I take out a loan if I'm self-employed or have no regular income?

You may still be able to take out a loan if you’re self-employed, but this will depend on the lender and your individual situation. Lenders may view self-employed borrowers as more of a risk as their income could fluctuate and leave them unable to afford repayments.

As a result, you may need to provide the lender with proof of your income, such as your annual accounts, your bank statements over the past few months or an SA032 form (a statement from HMRC that details your earnings).

Bear in mind that if you have no regular income, you’re likely to find it difficult to get a loan. Lenders will need to see that you can afford the monthly repayments, and, with no regular income, they may not be willing to risk offering a loan.

If you are approved for a loan, lenders may charge a higher rate of interest if they believe there’s a higher risk that you may struggle to make repayments.

What documents do I need to apply for a personal loan?

When you apply for a personal loan, you may not need to provide any supporting documents as part of your application. However, sometimes a lender may ask for additional proof of identity or income, for example.

Some of the documents you may need to provide include:

• your driving licence or passport
• utility bills
• a recent payslip
• a pension statement
• an SA032 form (if you’re self-employed)

Depending on the lender, you may be able to send a photo or scanned image of your documents online.

Can I apply for a personal loan with multiple lenders at the same time?

It’s theoretically possible to apply for a personal loan from multiple lenders at the same time, but this is unlikely to be a good idea in practice.

Every time you apply for a loan, the lender will run a credit check which will appear on your credit score. While one application is unlikely to do much damage, multiple credit checks in a short space of time could affect your score and affect your chances of being approved for credit.

Instead of applying to multiple lenders, it’s worth checking your eligibility with an individual lender or a loan broker. This won’t affect your credit score and will allow you to see what loans you qualify for.

If you use a loans broker, you’ll get results from multiple lenders so you can choose the best option for you.

Are there fees for arranging a personal loan?

The majority of lenders won’t charge any fees as standard on a personal loan. Most will only charge interest. However, there are a handful of lenders that may charge an arrangement fee, for example, and this will be represented in the annual percentage rate (APR).

How quickly will I receive funds after my loan is approved?

Some lenders may be able to make a decision on your application within minutes and transfer the funds within a couple of hours. Other lenders may take longer but could still send you the money on the same working day, or the next working day, depending on when you apply.

However, it could take several working days to receive your money from certain lenders. It’s worth checking with each individual lender to see how quickly they could transfer the money to your account.

If your situation is more complicated or you need to provide supporting documents, for example, it could take longer for lenders to review and approve your application.

What should I consider when comparing personal loans?

When you compare personal loans, it’s important to look at several different elements to ensure you get the best personal loan for your situation, including:

• The interest rate. This is likely to be the most important factor for most borrowers as it determines how much the loan will cost.
• Fees. While most lenders won’t charge any fees, it’s a good idea to check this.
• The flexibility of the loan. For example, you may want to see if you can change your payment date and make overpayments (or pay off your loan in full) without any extra charges.
• How quickly you can get the loan. Different lenders process applications and transfer funds at different speeds. So, depending on how urgently you need the loan, this is worth considering.

How do lenders calculate how much I can borrow?

Lenders assess a range of factors when deciding whether to approve a loan application and to calculate how much you can borrow. Some of the elements they look at include your:

• credit history
• income
• employment status
• record of repaying other forms of credit
• current credit agreements and how much debt you’re currently repaying

Crucially, you should only ever borrow a sum that you can afford to repay. Use our loan calculator to see how much your monthly payments for a loan could be.

Alternatives to a personal loan

Before taking out a personal loan, it’s worth considering some alternatives. These alternatives have their own set of pros and cons so could be a cheaper or more suitable option for your requirements.

• Credit cards. These may be a cheaper option if you only need to borrow a small sum over a relatively short period, especially if you choose a 0% purchase credit card. However, it’s important to manage a credit card effectively to avoid building up debt.
• Money transfer credit cards. If you want money paid into your bank account, you could use a specialist money transfer credit card instead. While there are interest-free options available, they could become expensive if you don’t pay off your card.
• Overdraft. These could be useful for short-term borrowing if you have an interest-free overdraft on your current account. Note that, if you exceed your limit or don’t have an interest-free overdraft, this could be a more expensive way to borrow.
• Buy now, pay later. This popular form of credit allows you to delay payment or spread the cost of a purchase. However, it’s important to be careful of building up debt and to check the terms of the agreement, including when charges may apply.
• Store cards. Forms of retail finance, such as store cards, could be an option if you make purchases from a particular retailer. While they can be useful, they can also be expensive if you don’t manage them effectively.
• Car finance. If you’re planning to use a loan to buy a car, you could consider a type of car finance instead, such as hire purchase (HP) or personal contract purchase (PCP). These forms of car finance are secured against the vehicle.
• Credit union loan. If you’re a member of a credit union, you may be able to use it to access an affordable loan. Alternatively, you may be able to join a credit union and apply for a loan at the same time. There’s a cap on the amount of interest a credit union can charge on its loans, and they can be an appealing option for borrowers who may struggle to get a loan from a mainstream lender.
• Secured loan. These may be suitable if you need a larger loan. Secured loans may have lower interest rates than unsecured loans but, because they’re secured against your home (or other property), there’s a risk that the lender could repossess this asset if you default on the loan. See more on secured vs unsecured loans.
• Guarantor loan. If you have a less-than-perfect credit score, a guarantor loan may be able to help you access credit. These loans require you to name a guarantor who is responsible for making the loan repayments if you are unable to.
• Save up. If you don’t need the money immediately, you could consider saving up the money you need instead of taking on debt.
• Ask family or friends. Depending on your situation, it may be possible to ask your friends and family for a loan. This is likely to be cheaper than going to a lender, but make sure you agree on the terms of the loan (including repayments) and consider how it could affect your relationship. Only borrow from someone you know and trust; be wary of loan sharks.
• Sell assets. If you need some extra cash, it may be worth seeing if you can sell any assets instead of borrowing money. This could be unused items you have lying around the house, or potentially any property or stocks and shares you may own.
• Government schemes. Depending on what you need your loan for, it may be possible to get funding via a Government scheme. This could apply if you want to make your home more energy-efficient, for example.

Personal loans eligibility checker and calculator

Before taking out a loan, you can use our loan calculator to see how much your monthly payments could be, based on the amount you want to borrow and your chosen loan term. You can change these fields, as well as the interest rate, to see how this would affect your monthly repayments and total amount you repay.

Once you have a better understanding of the loan you want, you can check your eligibility. This allows you to see the probability of being accepted for a loan, without affecting your credit score.

You can check your eligibility with Loans Warehouse, our preferred loans broker, to help you find the best personal loan for your situation.