Compare personal loans
Here's how to find the most competitive rates and terms available to you.
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What's in this guide?
- Comparison of lenders
- What is a personal loan?
- Would a credit card be cheaper?
- What should I look for in a personal loan?
- Video: 3 tips for finding the cheapest personal loan
- What is APR?
- How can I improve my chances being approved?
- What will I need in order to apply?
- Finder’s top 5 tips for taking out a personal loan
- What about a broker?
- What can I use a personal loan for?
- Our 2020 customer satisfaction league table
- Frequently asked questions
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.
Would a credit card be cheaper?
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.
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:
Video: 3 tips for finding the cheapest 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 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.
How can I improve my chances being approved?
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:
- 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:
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.
Finder’s top 5 tips for taking out a personal loan
- 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.
- 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?
- 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.
- 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:
- 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 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:
- Buying furniture/fittings
- Paying for a holiday
- Consolidating debt
There are, however, situations when a personal loan isn’t suitable. Here are a few examples:
- Business purposes
- Share dealing
Personal loans glossary
- APR. The Annual Percentage Rate (APR) is designed to be a benchmark for consumers, providing an annual summary of the cost of a loan. As well as the interest, the APR also takes into account any compulsory charges – like an “admin” or “set-up” fee (if there is one). However, crucially, lenders only have to award the advertised APR to 51% of those who take out the loan – the other 49% could be offered a different (higher) rate, at the lender’s discretion. That’s why it’s often referred to as the representative APR.
- Broker. Unlike a direct lender, a broker does not lend money but instead helps you to find a suitable lender.
- Capital. Also referred to as the “principal” or “loan amount”, this is the original amount borrowed.
- Credit check. Also referred to as a “credit search”, this is a background check run by lenders considering a loan application. The lender will request visibility of your credit record from a credit reference agency, and will use the information in the record to help make a decision on whether or not to offer you a loan, and, in some cases, what rate to offer.
- Credit reference agency (CRA). Credit reference agencies are the companies who hold your credit history. Lenders report borrowing activity to these agencies, and request information from them (a credit search) when considering applications for credit. The three main CRAs in the UK are Experian, Equifax and TransUnion (formerly CallCredit).
- Default. Defaulting on a loan means failing to make a pre-agreed repayment at the specified time. This will typically result in the borrower being charged a penalty plus damage to the borrower’s credit record.
- Direct lender. The term “direct lender” is used by lenders to distinguish themselves from brokers. A direct lender issues loans, while a broker refers you to a direct lender to get your loan.
- Draw down. Drawing down simply refers to the transfer of funds to the borrower at the start of a loan.
- Eligibility criteria. A list of conditions that a borrower must meet in order to be considered for a loan. These vary from lender to lender.
- Fixed rate. A fixed rate will not change for an agreed amount of time, even if market conditions mean that bank interest rates generally are increasing or decreasing. A fixed rate can be a popular option for some borrowers, and it allows them to budget with more certainty – knowing in advance the exact cost of a loan and the exact figure for each instalment.
- Guarantor. An individual who promises to repay a loan in the event that the borrower does not. Typically a friend or relative of the borrower.
- Instalment. A repayment towards an outstanding loan. This will normally consist partly of interest accrued so far, and partly of a proportion of the original sum borrowed.
- Interest rate. The interest rate is a charge for borrowing, and is a percentage of the amount of credit.
- Loan term. The amount of time over which a loan is to be repaid.
- Principal. Also referred to as the “capital” or “loan amount”, this is the original amount borrowed.
- Repayment holiday. An agreed period (normally either one or two months) where the borrower will not make repayments. The debt continues to accrue interest during this period, so taking a repayment holiday will generally increase the total cost of borrowing (and the loan term). Repayment holidays are typically offered to borrowers at the start of a loan, or at a specified frequency – for example one per year.
- Unsecured. An unsecured loan does not use an asset, such as a property or vehicle, as collateral for the loan.
- Variable rate. A variable rate is the opposite of a fixed rate, and can increase or decrease over time at the lender’s discretion. Typically, variations occur as market conditions generally shift – for example in increase or decrease in the Bank of England base rate.
Our 2020 customer satisfaction league table
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|
|★★★★★||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|
|★★★★★||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|
|★★★★★||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|
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