Compare personal loans

What is a personal loan?

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.

What should I look for in a personal loan?

There are a few key features you’ll want to consider when comparing loans. To find a better deal, ask yourself these questions:

• Do I qualify for this loan? Don’t waste time researching a loan if you don’t meet the requirements.
• Can I borrow the amount I need? Will you be able to take out the amount you need and afford to pay it back in a reasonable amount of time? If not, you might want to look elsewhere.
• Does it have a competitive interest rate? Most unsecured personal loans charge a fixed rate of interest, meaning your monthly repayments will stay the same throughout the loan. Remember that the advertised rate is not necessarily the rate that the lender will offer you. Lenders will look at factors like your credit score, income and expenditure when deciding what rate to offer you.
• What are the fees? Many lenders will charge an “arrangement” or “set up” fee.
• Can I make overpayments or repay the loan early? Most lenders will not penalise you for paying back some or all of the loan early, however that does not necessarily mean that doing so will save you money in interest. In many cases, you will be charged one or even two months interest to settle your loan early.
• How long will I have to pay it back? Aim for a loan term that gives you monthly repayments you can afford without being too long. Otherwise, you could wind up paying a lot in interest in the long run.

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.

Credit Cards vs Personal Loans?

Wondering if you should just get a credit card? Potentially, yes. However, the answer depends on what you’re buying, how much you’re borrowing and your level of self-discipline!

Credit cards can be cheaper for borrowing sums under £5,000, providing you have the discipline to repay it. Unless you have a good credit score and high income, credit cards typically won’t give you more than £3,000 to £5,000. Above £5,000 and personal loans should be a cheaper option.

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. 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. 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 and the length of the application process before settling on a form of credit. Don’t forget that you’ll pay a charge each time you withdraw cash on a credit card.

Video: 3 tips for finding a personal loan

What is APR?

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” or “eligibility checker” facility that you can use before applying for a loan. These facilities generally won’t impact your credit score.

Better still, services like Finder can check your eligibility with multiple lenders in one go.

How can I improve my chances of being approved?

There is no way to guarantee you’re approved for a personal loan, but giving yourself a better chance at getting approved starts with meeting the eligibility criteria set by the lender. To further your chances of being approved, keep the following in mind:

• Establish your borrowing capacity. What repayments can you afford? Lenders will use a variety of criteria to decide how much you’re eligible to borrow, but you need to know how much you can afford to repay. If you’ve done your sums and are sure you can afford a particular amount each month, chances are a lender will reach the same conclusion.
• Building a good banking history. Keep your accounts in good standing to build a positive relationship with your banks, even if you don’t plan on borrowing from them.
• Keep your credit rating in good standing. Make sure you keep track of all your payments, from credit cards to utility bills, because any arrears, debts, or missed payments will affect your ability to access credit. Don’t make too many applications for credit, and only apply for products you’re confident you’ll be approved for. Multiple applications for credit in a short space of time can signal financial difficulties to a potential lender.
• Keep track of your saving goals. If you manage to contribute to your savings regularly, it shows lenders that you are likely to manage ongoing loan repayments.

What will I need in order to apply?

In order to lend responsibly, lenders will need:

• Proof of identification.
• Proof of address.
• Proof of affordability.

When you apply for a personal loan online, many lenders can verify your identity and financial information electronically through a credit reference agency (CRA) like Experian. Instead of having to produce identification documents or bank statements, you may be asked to answer some security questions that only you should know. This process typically does not impact your credit score, although the subsequent full credit check that usually takes place after you submit your application may cause a slight, short-term dip in your score.

If you choose to apply for a personal loan at a physical branch, you’ll be required to adhere to traditional guidelines. This means you’ll need to provide appropriate documents to establish your identity and address separately. You may also be asked to prove your income, typically with the last two months’ worth of payslips and/or bank statements, or, if you’re self-employed, a document from HMRC verifying your most recent tax return calculation. However, the lender will still conduct a credit check and affordability assessment using a CRA.

The documents needed to apply for a personal loan

How to compare personal loans with Finder

Use our free eligibility checker to discover the loans that you are most likely to be accepted for, without hurting your credit score.

1. Tell us about yourself
Let us know how much you want to borrow, what you want the loan for and a little about yourself. Remember, this is not an application, so it will not affect your credit score.

2. We search the market for you
We search a large panel of lenders to find you the loans that you’re most likely to be accepted for.

3. See your eligibility before you apply
Sort your personalised results by your chance of approval and compare the best loan rates available to you.

Finder’s top 5 tips for taking out a personal loan

1. Compare lenders.
   It can be tempting just to take out a loan with your current bank, rather than shopping around. But more often than not, it pays to compare personal loans. And it’s easy! Use finder’s personal loan comparison tables to estimate the costs with multiple providers, without running a credit check.
2. Consider if a personal loan is definitely the right option for you.
   Personal loans can offer a highly-structured form of lending, which can be a real advantage. You know when you’ll have paid off the loan, and, if the rate is fixed, you know exactly what you’ll pay. However, there are situations when the flexibility of a credit card or an overdraft could make those more suitable options. Similarly, if you have a mortgage, then as a secured loan, it may have a lower rate of interest. There are some important questions to ask yourself however. If you take out a credit card, will you just end up spending more, and only making the minimum monthly payments? And by remortgaging, could you end up borrowing more than you need, for much longer than you need it?
3. Check the early-repayment terms.
   As well as offering peace of mind, by paying your loan off early you can save money on interest. However many lenders will charge a fee, for example one month’s interest, if you wish to repay your loan early – particularly if they’re offering a highly competitive rate. For the lender, it’s a way of guaranteeing a minimum income from the product. If you think that there’s a strong chance you’ll repay the loan early, then a product with no early-repayment fees could potentially be more suitable than a product with high early-repayment fees and a slightly better rate.
4. Look at the rate bands
   Many lenders offer better rates when you borrow larger sums, or when you borrow over longer periods. Sometimes, borrowing fractionally more can put you into the next rate band, and save you a packet in interest. However:
5. Understand the risks and check the small print.
   You should only ever apply for a loan if you’re confident you’re eligible and you’re certain you can meet the repayment terms. If you’re worried about slipping into a habit of spending more than you have, then consider saving the money first, before making that expenditure, rather than borrowing the money.

What about a broker?

As long as you bear in mind that it’s unlikely to check the whole market, but instead a 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.

What can I use a personal loan for?

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:

Frequently asked questions

• How much can I borrow with an unsecured personal loan?

  You can typically borrow between £1,000 and £25,000, subject to approval. Some lenders offer loans up to £50,000, but that’s normally only to existing customers, and again is subject to the lender’s assessment of your circumstances.

• Should I get a consolidation loan?

  Consolidation on its own is not a priority. If you’re in debt, your aim is to simply pay it off as quickly as possible at the lowest cost. Debt consolidation loans are often sold as making repayments “manageable” and while this is true, you still need to aim for the cheapest repayment package. A debt consolidation loan is not necessarily the most effective way to do that.

• I’m a non/new resident of the UK. Can I get a personal loan?

  Lenders look at your credit history to determine how much of a risk they would be taking in offering you a loan. If you’ve only recently arrived in the UK then there will be less information for a potential lender to assess.

  Getting credit with little or no UK credit history can be tricky. What’s more, lenders may charge a higher rate of interest on any credit that they do offer you.

  As soon as you’ve found a place to live in the UK you should get yourself on the electoral roll (visit your local council’s website to register) and start building a credit history. Opening a UK current account can be another step towards building a credit history – demonstrating that you can keep up direct debits and regular utility payments will help show that you are more likely to keep up repayments on a loan.

  Remember: don’t just apply for loan after loan the moment you arrive in the UK. This could actually harm your chances of securing credit – multiple rejections could be seen by a potential lender as a sign of financial difficulties.

  If you’re struggling to get approved for a personal loan, then you may wish to consider a credit builder credit card. You can apply for a smaller amount of credit (typically £250-£1000) and after as little as 4 months have your credit limit reviewed.

  The UK government also offers a Refugee Integration Loan to refugees who have been given humanitarian protection. Find out more at www.gov.uk/refugee-integration-loan

• I'm self-employed. Can I get a personal loan?

  If you’re self-employed and you require a personal loan, you may feel a bit let down by some new eligibility requirements which have been put in place since the financial crisis and the abolishment of “self-certification loans”. However, there are options available from both traditional and non-traditional lenders offering personal loans to self-employed individuals.

  The main challenge when applying for a personal loan when you are self-employed is proving your income, and that it’s sustainable. You will likely face lots of questions, so to avoid delays it’s important to be prepared.

  It’s common for lenders to request financial statements and tax returns (HMRC SA302) for the last two years. Lenders will also want to see your bank statements showing the payments of income noted in your SA302 tax form.

  If you are contracting it may be necessary to show proof that contracts have been renewed over a 1-2 year period. If you are just starting out then you will need to be able to demonstrate how employable you are, for example your years of experience in an industry or your relevant qualifications.

  If you can’t provide the required evidence of income and sustainability then you may have to consider a non-traditional lender, who may offer more options for you, but often this will come at the cost of a higher interest rate.

• I have bad credit. Can I get a personal loan?

  The good news is that there are now plenty of specialist lenders who have decided to focus on “non-standard” lending, such as loans for bad credit. The bad news is that these lenders tend to charge higher rates. If you have a friend or relative who would be willing to guarantee your loan (i.e. promising to step in and clear the loan if you fail to do so), then you could consider a guarantor loan.

• Will my credit score affect my personal loan interest rate?

  Most lenders offer different interest rates to borrowers depending on how risky they are to lend to. This is what’s called “risk-based pricing”. All responsible lenders will run a full credit search before approving an application, but the vast majority of lenders now offer a “soft search” or “eligibility checker” facility. These allow borrowers to get a good idea of the likelihood that they would be approved for a loan, plus an estimate of the rate they would be offered, without their credit score being affected.