Exactly what is a loan? What can you use it for and how do you get one? Find answers to all your questions about loans here.
A loan is a lump sum of money you borrow from a financial organisation that you pay back (with interest) over a set period of time.
There are many different types of loan, but they all fall into 2 categories: secured and unsecured.
To get a loan, you need to apply directly to a lender or a broker. You can do this online, over the phone, by post or in person at your local bank branch.
Once the lender approves your application, they'll transfer the money directly into your bank account.
You then pay back the loan, normally in monthly instalments, until the total balance is paid off.
If you miss a payment, you'll be charged a fee and extra interest. The amount you failed to pay will be added on to the following month's amount.
A mortgage is a type of secured loan that you must use to buy a property.
Good for long term borrowing
Fixed interest rates
You can borrow a lot
May take less than 48 hours
Charges for repaying early
You may need to put your assets as security
Payments are often inflexible
You need a good credit score for best rates
You can decide how long you want to pay back your loan before you apply. It's usually over the course of between 1 and 5 years, though there are always exceptions.
The longer you take to pay off the loan, the more expensive it will be because of interest charges.
You could borrow between £1,000 and £50,000 with most types of loan.
Smaller loans tend to be over shorter time periods, usually a year or less
Larger loans usually last at least 3 years, but can be anywhere up to 25 years
A number of different businesses offer loans in the UK, including:
Peer to peer websites
You must be at least 18 years old to apply for a loan in the UK.
You normally have to:
Be a UK resident, with proof of address
Be able to pay back the loan, with proof of your income
Pass a lender's credit check
Yes, you can apply for a loan with someone else. The lender will assess the personal and financial details of both loan applicants.
You can take out a joint loan with almost anyone, but you usually both have to be over 18 years old, UK residents and each prove you can pay back the loan.
Most lenders charge you interest when you take out a loan. This is a percentage of the money you owe for the duration of your loan. It's called APR, or annual percentage rate.
Some charge other fees, including:
Extra fees for transferring your funds quicker
Late or missed payment fees
Payment protection insurance
How much the loan costs ultimately depends on how much the original loan was, the loan term and the interest rate.
APR stands for annual percentage rate. It's the total cost of borrowing over a 12 month period and is displayed as a percentage.
According to the regulator, the FCA (Financial Conduct Authority), the APR must include all the standard costs of getting a loan. This includes any application fees charged by the lender.
Any charge that the consumer must pay to obtain credit must go into the APR calculation.
Lenders have to display a representative APR on all their loans to help you accurately compare rates. This is the interest rate that at least 51% of successful applicants will get when they apply. The remaining 49% may have to pay a higher rate.
This means you may not get the advertised interest rate when you apply for a loan.
Compound interest is where you're charged interest on the interest you've already been charged.
Most lenders charge compound interest on their loans. The best way to find the cheapest loan is to look at the total amount you'll repay over the full term. Use our loan repayment calculator to see how much your loan could cost you.
Your loan payments include the loan and interest. With most loans, you pay back the same amount every month because the interest rate is fixed for the duration of your loan.
There are lots of different types of loan, but they're all either:
Secured loans are tied to something you own. For example, mortgages are secured loans against your property, which the lender could repossess if you fail to pay it back.
These loans tend to be for larger sums of money over longer periods of time.
Unsecured loans are not directly associated with any of your belongings or assets. But debt collectors can still come after your assets if you fail to pay back the money you owe.
They're usually for small to medium amounts and last between 1 and 5 years.
Personal loans are examples of unsecured loans.
This is how long you have to pay back your loan. Try to choose as short a period as you can while keeping your repayments affordable.
Most lenders will transfer the money straight into your chosen bank account. However, vehicle finance pays your loan straight to the car dealership.
There are no set restrictions on the number of loans you can have at once. However, applying for lots of loans in a short amount of time could damage your credit record.
If you want to borrow less than £500 you may be better off with a credit card or an interest-free overdraft. Here are 4 ways to borrow a small sum of money.
The best place to get a loan is different for everyone. Look out for who lets you borrow the money you need, over a suitable time period, all for the cheapest cost. Compare loans here.
Technically, yes. But it will cost you! Lenders can charge you up to 58 days interest if you repay your loan early. But you also save money on the interest you would have paid during the loan, so you need to weigh up which will save you more.
It can be harder to get a loan when you're young because you may not have borrowed money before or you have little credit history. This means lenders cannot be sure you can repay the loan and so may reject your application, offer you less money or hike up the interest rate. You must be 18 years old to get a loan.
Need a loan? Compare loan lenders side by side to find one that is cheap to pay back, lets you borrow what you need and has repayments you can afford.