A personal loan also known as an unsecured loan, lets you borrow a fixed amount of money, which has to be paid back at a fixed interest rate over a set period of time, typically in fixed monthly repayments.

For example, you might be able to borrow £20,000 over 5 years at 3% APR, with fixed monthly repayments of £359.

With a personal loan you can spread the cost of paying for larger or more expensive items.

Personal loans are also known as unsecured loans because you do not borrow money against the value of another item.

With a secured loan, you can secure the borrowing against an asset like your home or car.

This item offers security for the bank or lender in case you default on your loan repayments.

With a personal loan there is no security for the lender if you fail to repay your loan so your credit history is an important factor in whether you are approved by the lender for a personal loan.

When lenders do a credit check they will also use your credit rating to determine the personal loan rates offered to you.

What is a credit check?

A credit check is when someone looks at your financial history in your credit file.

This is called a hard credit check when it is done in connection with an application in order to make an assessment about your borrowing habits.

Each check is recorded on your file so multiple applications may cause lenders to think you are struggling to get credit and not a responsible borrower.

When you look at your own credit file or a broker does on your behalf, this is known as a soft credit check because there is no direct connection with an application. This will not lower your credit rating.

The broker will use knowledge of the loan offers available and criteria from different lenders, to tell you what chance you have of being accepted.

How to get the best personal loan

Once you have decided how much money you want to borrow and how long you need to pay it back, applying for a personal loan online is as simple as choosing the best loan for your circumstance from our table.

Each loan in our comparison table will show you a representative example of how a personal loan works. The representative or example rate will show you the amount borrowed, the borrowing term and the interest you will pay as part of the repayment.

This is just an example, the APR you are offered will be determined by how the lender looks at your credit rating.

Each lender will have its own criteria for the credit score that applicants must meet. This affects whether they will offer you a loan and also, the APR they offer with it.

This means that you may receive a loan offer with a higher rate than the representative APR.

Understanding APR

The annual percentage rate or APR, is the amount in interest and charges you will owe on top of the amount borrowed.

The representative APR shown on our comparison tables is an advertised rate. This personal loan rate is offered to at least 51% of successful applicants.

The APR you will receive depends on your financial status and credit history.

The representative APR is not guaranteed but is the easiest way to compare similar loans on our comparison table.

How our comparison can help

Our personal loan comparison table lists offers from a variety of lenders with different rates and terms.

It may seem easier to get a loan from your bank but that might not be the best or cheapest option for you.

To find the best personal loans available to you, use this checklist:

  • Monthly payments: This is how much of your loan you pay back each month. Some lenders offer repayment breaks, but this may cost more overall.

  • Representative APR: This is the interest you are charged for borrowing. Look for a loan with low APR and check to see if the interest is fixed or variable.

  • Total payable: This is the total cost of all your monthly payments and your interest. The shorter your borrowing term, the less you pay back.

  • Fees: You may have to pay early repayment charges, or fees for late payments. Some brokers also charge for arranging your loan, so check the terms before you apply.

How much do they cost?

If your lender thinks you are at risk of missing your repayments, you will be charged more for your loan. Some of the factors that affect the cost of your loan include:

  • How much you borrow: The more you borrow, the higher your monthly repayments will be

  • How long you borrow for: Short term loans may come with a higher monthly cost, because they may charge more interest than longer term loans

  • Your credit history: You may pay a higher interest if you have bad credit

  • Your income: If your income is low, you may be charged a higher interest rate

Once you have found a loan that works for you, use our loan repayment calculator to see how much a loan costs to repay each month.

This will help get your finances in order upfront and avoid any nasty surprises later.

You should only apply for a loan you can afford to pay back. Here is what happens if you cannot pay back your loan.

Compare the best loan for your circumstance by considering the amount you want to borrow and the time frame in which you can pay it back.

What can I use a personal loan for?

Personal loans or unsecured loans can be used to obtain credit for a large purchase or home improvement.

Unlike with other forms of credit, the cost of the loan is fixed which means your monthly loan repayments will stay the same for the whole of the repayment period.

On a loan application you will need to specify why you want a personal loan and some lenders will allow you to split the amount for different reasons.

For example you may want to borrow £10,000 with £5,000 for a home improvement loan, £3,000 for a car and £2,000 for a holiday.

Renovating your home

Home improvement loans can be a good way to increase the value in your home.

Use our home improvement loan comparison table to compare loans and find the best loans available to you.

Financing a car

If you need money for a new car, you can use our comparison table above to find an unsecured car loan.

You can also check the cost of car finance using our car finance calculator then apply online for a quick decision through our credit broker, CarFinance 247.

You can find a car through CarFinance 247 or choose from a dealership yourself.

Which lender should I choose?

A good personal loan rate is unique to you and you may be able to get a better than the rates offered by your bank.

Interest rates can have an impact on all types of credit, borrowing and savings. The Bank of England sets the bank rate, also known as the base rate, for the UK and this can influence the cost of borrowing or the rate of interest charged by lenders.

If you receive an unsolicited loan offer from your bank it is important to compare the offer with at least two others. This will help to make sure you are getting the best rates for your preferred amount and duration of the loan.

Banks vs Online lenders

There are many financial institutions offering personal loans and which one works for you will depend on your loan requirement and how you want to engage with them for the duration of the loan repayment.

For example, you may prefer to speak to someone in person to discuss your loan or you may be happier to keep all communication online.

What if I have bad credit?

You may still be able to get an unsecured personal loan by comparing:

  • Guarantor loans, which let you borrow more by nominating a friend or family member to take over the repayments if you cannot pay back your loan.

  • Bad credit loans let you borrow even if you have a poor credit history. However, your choice of lender is limited and you may pay more interest.

You may be able to borrow what you need with a secured loan, which is tied to something you own like your house or car. However, if you cannot pay back your loan, your lender can then take this from you.