Personal Loan Guide

Taking out a personal loan is the standard way of borrowing money from a bank, building society or specialist loan company.

You can use the money from a personal loan to spend as you wish. Many people use them to buy a car, a dream holiday, home improvements, or even to pay off credit card bills in one go, allowing you to spread the repayments over a longer time at a lower interest rate.

Personal loans are ideal for people who want to repay something over a few years, if you only need the money for a short period, using a credit card probably makes more sense.

The amount you can borrow

Generally you can borrow up to £15,000 with a unsecured personal loan, but with some products you can go as high as £25,000.

The repayment period

It  repayment period depends on the lender. Some will let you borrow the money for as little as six months, although a year is more common. The maximum repayment period is usually seven years, but some firms will lend over ten years. 

Unsecured

Unsecured personal loans are not tied into anything, but if you default on your repayments you could end up with a poor credit rating. A consequence of having a poor credit score is you will experience difficulty taking out new credit cards, a mortgage or even taking advantage of an interest free deal in the high street. 

Interest

Interest rates do vary from lender to lender and when comparing deals the most important figure is the Annual Percentage Rate (APR) The APR is real cost, including fees and charges, as well as the actual interest, on a loan. 

However some loan providers now offer risk-based APR pricing, with the best rates reserved for customers with a good credit history. 

When you apply for a personal loan,  the lender runs your application through a credit rating agency. Using the information from the credit reference agency, the lender then gives you a credit score. Some lenders use this to assess your level of risk and offer an interest rate (APR) according to how good your credit rating is. 

A poor credit rating won't necessarily prevent you from getting a loan, but you will probably have to pay a higher interest rate. 

Fixed Rates

Interest rates are generally fixed for the length of the loan, which means you know exactly how much you will have to repay each month.

Find the right loan

You don't have to go to a traditional bank or building society for a personal loan as some of the better deals are offered through supermarkets and other lenders, so shop around. 

For the very latest offers view our best loan deals section or use the loan finder to compare loans from all the main lenders in the UK.