These loans are granted (or not) based purely on the borrower's credit score and their ability to pay the money back. You may not be able to borrow as much, but you don't risk losing your assets if you're unable to repay the loan. With a personal loan, you can typically borrow up to £25,000.
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Whether it's funding home improvements, or getting through a lean period, find the information you need to pick the right one for you
What is a loan?
A loan, is a financial arrangement where a lender — such as a bank, building society, or online lender — provides a specific amount of money to an individual or a business.
This sum of money, known as the principal, is provided with the understanding that it will be paid back with interest, over a predetermined period known as the term.
There are several types of loans available in the market, each with different features and requirements that are tailored to what you intend to use the money for, and what your financial circumstances are.
When taking out a loan always think about what you can afford to repay comfortably."
Types of loans
Unsecured loans
These loans are granted (or not) based purely on the borrower's credit score and their ability to pay the money back. You may not be able to borrow as much, but you don't risk losing your assets if you're unable to repay the loan. With a personal loan, you can typically borrow up to £25,000.
Secured loans
These require some type of security, such as a car or home, which you borrow against. This improves your eligibility and also allows you to borrow more. But it does put your car or home at risk of repossession, if you're unable to keep up with repayments. With a secured loan you can usually borrow a lot more, up to £250,000 or more.
Types of loans
Unsecured loans
Secured loans
These require some type of security, such as a car or home, which you borrow against. This improves your eligibility and also allows you to borrow more. But it does put your car or home at risk of repossession, if you're unable to keep up with repayments. With a secured loan you can usually borrow a lot more, up to £250,000 or more.
What can I use my loan for?
There are a number of things you may need a loan for. Here are some common reasons people take out loans:
To spread the cost of purchases
A personal loan is a good option if you want to fund a holiday or an home improvement project. They let you borrow a fixed sum of money and pay it back in fixed monthly instalments.
To buy a car
A car loan is a loan you take out to purchase a car. The loan is secured against the vehicle you intend to purchase. This means that if you are unable to make repayments and default on the loan, the lender can seize the vehicle.
If you want to pay off several debts
Debt consolidation loans allow you to borrow money to pay off several debts, by combining them into one so there is only one monthly repayment to make.
If you have a poor credit history
Bad credit loans are designed for people who have had trouble getting credit in the past because of a history of missed payments or CCJs.
To buy a property quickly
Bridging loans are useful when you need to pay for something but are waiting for funds to become available, for example, waiting for the sale of another property to go through.
To borrow for your business
Business loans are similar to personal loans, but are specifically designed for business use, for example buying more equipment or expanding the business.
What are the eligibility requirements to get a loan?
To get a loan you must:
Be at least 18 years old
Be a UK resident
Provide proof of identity and income
Pass a lender’s credit check
Most providers have their own assessment criteria so a particular provider may give more weightage to certain criteria than another.
How to find the best loans
Here are some things you should consider when getting a loan
Check your eligibility
Work out what you’re likely to be accepted for before you apply. It’ll save you time and it means your credit rating won’t be affected by applying and being rejected.
Calculate the amount you need
Work out how much money you need. Don't borrow more than you need or more than you can afford to pay back.
Compare interest rates
You’ll be offered an interest rate based on your credit history. Each lender will offer a different rate so you’ll need to pick one that works for you.
Know how long you need to repay the loan
The longer the term, the lower repayments will be. But you'll pay more in interest overall if you take a long time to pay it off.
Watch out for fees
Check the small print. Even the cheapest loan companies can charge fees for processing the loan, making extra repayments or paying the loan back early.
How do I apply for a loan?
You can apply for a loan online, over the phone, by post, or, if applying with a bank, by visiting a branch. You will also need the following documents for proof identity and income:
You will also need to provide the following documents for proof identity and income:
Bank details
Current address, and previous address for the past three years
Personal details e.g. date of birth, etc.
Employment details and proof of income
Some sources income are not accepted by certain lenders when assessing your eligibility. Some examples of these are:
Reimbursement for expenses
Maintenance payments from an ex-spouse or partner
Overseas income
Rental income from any buy-to-lets that you own
Student loans
Benefit payments – child benefit, universal credit or jobseeker's allowance (JSA)
How much will your loan cost?
The amount your loan will cost you will be dependent on how much you borrow, the APR, the term you choose, and the fees associated with your loan. Some common types of fees include:
Application fee – pays for the process of approving a loan
Processing fee – similar to an application fee, it covers the costs associated with administration
Origination fee – the cost of securing a loan (common for mortgages)
Late fee – this is what your lender will charge you for late payments
Broker fee - using a broker will incur a fee for services like negotiations, sales, purchases, communication with lenders, delivery and advice on transactions.
You can use our loan repayment calculator to help you work out what a loan may cost you.
Protecting yourself against scams
In the digital age, it's crucial to be vigilant when seeking unsecured loans online. Scammers often prey on individuals in need of financial assistance. Here are some tips to protect yourself from loan scams:
Verify the lender
Check the lender's credentials and verify that they are authorised and regulated by the Financial Conduct Authority (FCA). You can use the FCA's register to confirm a lender's legitimacy.
Avoid upfront fees
Legitimate lenders typically do not ask for upfront fees before disbursing a loan. Be cautious if a lender demands payment before providing the loan.
Research reviews
Read online reviews and testimonials about the lender. Legitimate lenders usually have a positive online presence, while scam artists often have negative reviews or no online presence at all.
Never share personal information
Avoid sharing personal or financial information with unsolicited callers or emails. Only provide information to trusted and verified lenders.
Use secure websites
Ensure that the lender's website has a secure connection. Look for "https://" in the website address and a padlock icon in the browser's address bar.
Trust your instincts
If something feels off or too good to be true, trust your instincts and seek advice from trusted financial professionals or organisations.
Be cautious if a lender demands payment before providing the loan.
How to keep up with repayments
Managing loan repayments is essential to maintain your financial stability and protect your credit score. Here's how to handle loan repayments effectively:
Create a budget
Establish a monthly budget that includes your loan repayments. Make sure you can comfortably cover these payments without straining your finances.
Set up a direct debit
Many lenders offer the option to set up a direct debit from your bank account. This ensures you never miss a payment.
Prioritise loan repayments
Make loan repayments a top financial priority. Missing payments can result in late fees, damage to your credit score, and even legal action in extreme cases.
Communicate with your lender
If you encounter financial difficulties that affect your ability to make payments, contact your lender immediately. They may offer temporary solutions, such as deferment or a modified repayment plan.
Avoid additional debt
While repaying your loan, try to avoid taking on additional debt that could strain your finances further.
FAQs
How long does it take to apply?
Applying online can take minutes if you have your details ready. Some secured loans take longer as the lender will need to value your property.
How quickly will I get the money?
If your application is approved it could be in your account within 24 hours. However, some lenders take up to 5 working days to transfer the money.
What is a soft search?
It is an interest rate that at least 51% of borrowers will get if accepted for a loan. The other applicants can be offered a higher interest rate instead.
Do all loans offer fixed APRs?
No, while most unsecured personal loans offer fixed rates, some secured loans offer variable interest rates that may change.
What can I use the loan for?
Most loans can be used for almost any purpose. Some cannot be used to pay other debts, for buying property or land, or for gambling or investing.
Can I get a joint loan?
Yes you can apply for a loan with someone else, but you will both need to meet the lending criteria and may have to live at the same address.
Can I get a loan if I have bad credit?
If you don’t have a strong credit rating or if you are borrowing a substantial amount of money, you may have to secure the loan with an owned asset, such as a car or a property (secured loan).
Can I overpay or pay off my loan early?
Some loan providers penalise you if you try to repay your loan early by applying an early repayment charge (ERC).
Generally, the earlier in the term you repay your loan, the higher the charge you may incur.
What happens if I miss loan repayments?
You could be fined by your lender and it will end any low interest incentives . It can also leave a negative mark on your credit history. This can lead to higher interest rates for any loans you want to take out in the future.
What is a repayment holiday?
A repayment holiday is when you don’t make repayments on your loan for a period agreed with your lender. These are useful if your personal circumstances change, such as losing your job.
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