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So far it’s meant that lenders are being more cautious than usual. Even though interest rates remain low, it’s actually harder than it has been to get your application approved.
Lenders want to be confident that they’ll get their money back, but these are unprecedented times, with different industries coping better than others. A lender that might have gladly approved your application six months ago might think twice today.
This, in turn, makes it more important than ever to use a good loan-matching service – so that you’re checking your eligibility with multiple lenders in one go, without affecting your credit score. In this way you can avoid wasting time and only consider realistic rates from willing lenders.
A personal loan is when you borrow a fixed amount from a lender, and pay it back with interest over a set time period — usually in fixed monthly repayments.
Lenders consider factors like your income and credit score when deciding whether to offer you a loan and what interest rate to charge (learn more about APR).
The main advantage of a loan is you get cash upfront, but are still able to spread the cost of a big purchase over time.
Potentially, yes. However the answer depends on what you’re buying, when you’re buying it, how you intend to pay the money back and your level of self-discipline!
Personal loans come in a lump sum – you have a predetermined amount of time to pay them off. By contrast, credit cards are a revolving form of borrowing, so they can theoretically last a lifetime. You borrow what you need, when you need it (subject to a card’s monthly limit) and you have to make at least a minimum monthly payment on your balance. This can tempt borrowers into only paying the minimum and making additional purchases later on, resulting in indefinite debt. Credit card interest rates are generally variable, but cards often come with a promotional fixed-rate introductory period.
Using the wrong credit card could cost you more, because credit cards tend to have higher rates than personal loans. However, a card with a promotional rate of 0% on purchases could be a smart option, if you can get approved with the credit limit that you need.
Finally consider any other fees (application, monthly or annual fees), any offers/rewards and the length of the application/approval process before settling on a credit card, personal loan or other form of credit. Don’t forget that you’ll pay a charge each time you withdraw cash on a credit card.
There are a few key features you’ll want to consider when comparing loans. To find a better deal, ask yourself these questions:
It’s important to remember that every individual’s personal circumstances are different and lenders will assess each application based on these. To give some further guidance on which lender might be best for your circumstances, our Best Personal Loans guide highlights lenders that are favourable for a variety of different financial circumstances and credit ratings.
The annual percentage rate (APR) provides an annual summary of the cost of a specific loan from a specific lender. It takes into account both interest and any fees that all borrowers will have to pay. If a loan doesn’t come with a product/arrangement/application fee, then usually the interest rate and the APR will be the same (fees that you might incur, like missed payment fees or early redemption fees, aren’t taken into account).
The vast majority of lenders tailor the rates they offer to each applicant. This is known as “risk-based pricing”. If your application for a loan is successful, a lender will make you a loan offer, detailing the actual APR that you’ll receive.
The representative APR is the APR that a lender realistically expects 51% of its customers to receive. The 51% of applicants with the highest credit scores tend to be offered the representative APR, while the other 49% are likely to be offered a higher rate.
For personal loans, the representative APR is relevant but doesn’t tell the whole story. For example, if it’s very low, it probably means you need an excellent credit score to get accepted in the first place; if your credit score is less than perfect, then if you get approved, you’re likely to be offered a higher rate than the advertised one. Interest rates can also vary according to the amount and duration of a loan.
So despite the fact that APRs and representative APRs are designed to help consumers, they can feel like a bit of a minefield. Thankfully, most lenders offer a soft search facility (usually called something like “fast check” or “eligibility checker”) that you can use before you apply to get an indication of your likelihood of approval plus the actual rate you’d be offered. These facilities generally won’t impact your credit score, but it’s important to check.
Better still, services like Finder can check your eligibility with multiple lenders in one go.
There is no way to guarantee you’re approved for a personal loan, but giving yourself more chance at being approved starts with meeting the eligibility criteria set by the lender. To further your chances of being approved, keep the following in mind:
In order to lend responsibly, lenders will need:
When you apply for a personal loan online, most lenders can now electronically verify all of these through a credit reference agency (CRA) like Experian. In this case, you may need to answer some questions that only you would know the answer to, but you won’t have the hassle of having to dig out any ID, bank statements etc. This process won’t affect your credit score (however the full credit check that normally happens after you hit “apply” has a slight and usually short-lived negative effect).
If you apply in a branch, the old fashioned rules apply. You’ll need to prove your ID and address with separate, acceptable documents, and you may be asked to prove your income (generally through the last two months of payslips and/or bank statements, or if you’re self-employed, an HMRC document confirming your latest tax return calculation). However, the lender will still carry out a credit search and affordability check through a CRA.
As long as you bear in mind that it’s unlikely to check the whole market, but instead subsection of lenders with whom it has an arrangement, then a broker can take the strain out of finding a competitive personal loan deal. Brokers find the most competitive rate available to you from their panel of lenders, taking into account your individual circumstances. Normally this service is free, because the broker will earn a referral fee from the lender.
Some brokers and “matching services” can now run soft searches with a range of lenders in seconds, meaning that without any impact on your credit score you’ll be able to get realistic rate quotes for loans you’re likely to be approved for. This can be a smart way to avoid disappointment, protect your credit score and focus on lenders likely to approve you.
A better question is: What can’t you use a personal loan for? This type of financing can cover almost any large expense or even consolidate your debt. Lenders will normally ask you what you need the money for, during the application process. Here are some common reasons for taking out a personal loan:
There are, however, situations when a personal loan isn’t suitable. Here are a few examples:
We asked borrowers to rate their overall satisfaction with their lender and whether they would recommend it to a friend. The table below shows both for each brand. We carried out our survey in December 2019.
|Overall satisfaction||Customers who’d recommend||Issuer||Review|
|★★★★★||87%||Despite having a higher percentage of customers who would recommend it, Tesco’s loan service received a lower rating overall than our top two providers. However, the UK’s largest supermarket chain still offers some strong options, with further rate reductions for Clubcard holders.||View deals|
|★★★★★||81%||Part of the Lloyds Banking Group and a well known brand in its own right, customers in our 2020 survey praised Halifax’s easy and fast application process and the team’s customer service skills.||View deals|
|★★★★★||80%||Back in 2004, Zopa was one of the pioneers of peer-to-peer lending, and is now fully regulated. Customers in our survey reported great interest rates and an efficient and effective service.||View deals|
|★★★★★||85%||Sainsbury’s, another one of Britain’s largest supermarket chains, also received higher levels of customer recommendations than its overall score. Like Tesco, Sainsbury’s offers good rates and further reductions to its Nectar card holders.||View deals|
|★★★★★||82%||Santander’s customers in our survey praised the bank’s easy application process and helpful, reliable and efficient customer service. While, again, the overall score here is lower than the number of customers who would recommend the service, Santander offers some strong options.||View deals|
|★★★★★||76%||While this British institution is better known for its retail offering, M&S also have some great financial products, including loans and credit cards. Customers surveyed applauded M&S Bank for being easy to deal with, trustworthy and flexible.||View deals|
|★★★★★||75%||One of the leading banks int he UK, HSBC offers competitive loans to new and existing customers. In our survey, the bank’s easy and clear processes and caring customer service was commended by customers.||View deals|
|★★★★★||74%||Having been founded over 300 years ago, Barclays is another giant of British banking. The feedback from customers in our survey was mixed – most were pleased with the level of service, but some had reservations.||View deals|
|★★★★★||69%||NatWest has also split customer opinions in our survey. Many said the application was easy and the service helpful, with a few customers complaining about high rates and penalties for paying off early .||View deals|
|★★★★★||71%||Another company with higher customer recommendation percentages than overall score, most of the Post Office customers in our survey said they would recommend it, with some complaining about the application form being too long.||View deals|
|★★★★★||64%||A relatively new addition to the market, Bamboo is a fast growing direct lender, offering both unsecured and guarantor loans. Customers reported good service but high rates.||View deals|
free2 claims to provide “free thinking finance”, offering unsecured personal loans specifically designed for over 55s.
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