Personal loans, also known as unsecured loans, are a way of borrowing a fixed amount of money. You pay it back, with interest, over a set period of time. The interest rate on an unsecured personal loan is fixed for the period and you usually pay monthly.
For example, you might be able to borrow £20,000 over 5 years at 3% APR, with fixed monthly repayments of £359.
An unsecured loan is a useful way to spread the cost of paying for a big purchase. This could be something like a car, wedding or home improvements.
Personal loans are also called unsecured loans because you don’t borrow the money against another item you own. With unsecured lending, there’s no security for the lender if you don’t repay your loan. That means your credit history’s very important when it comes to unsecured loans. Your credit check will play a big part in whether you’re approved when applying for personal loans. It’ll also affect what personal loan rates you’re offered.
In contrast, if you take out a secured loan, the borrowing’s secured against an asset you own, like a house or car. That gives the bank or lender security, in case you default on your loan repayments. You can read more about the differences between secured and unsecured loans here.
What is a credit check?
When you apply for personal loans, UK lenders do a credit check. That means they look at your credit file to check out your financial history. When it’s done in connection with an application for credit like this, it’s called a hard credit check. They’re assessing your borrowing and financial habits before to decide whether you're a responsible borrower.
Every time, a lender does a credit check, it is recorded on your credit file so multiple applications may cause lenders to think you are struggling to get credit and not a responsible borrower. You can read more about how your credit score affects your ability to get a loan here.
How to get the best unsecured loans
First, you’ll need to think about how much you want to borrow through your personal loan, and how long you need to pay it back. After that, it’s time to find the best personal loans for your needs, and apply. This is all pretty simple to do, thanks to our personal loan comparison table.
Each loan listed in our personal loan comparison table shows you an example of how the loan works. This representative example gives a borrowing amount, borrowing term and how much interest you’ll pay on that unsecured loan. But it’s important to remember that it’s just an example. The actual personal loan rates you’re offered will be the lender’s decision after assessing your eligibility.
Every lender has its own criteria for what credit score you need to be accepted for their personal loans. That’ll affect whether they’ll give you an unsecured loan and what APR they offer. So you could even be offered personal loan rates that are lower than the representative APR that’s listed if you’re lucky. The personal loan comparison table is a good place to start to find the loans and the best rates.
Understanding personal loan rates
If you’re looking for cheap personal loans, it’s important to understand what’s meant by APR (annual percentage rate). The APR is the amount you’ll owe on top of what you borrow, for interest and other charges.
The representative APR shown in our personal loan comparison table is an advertised rate. It means this rate is offered to at least 51% of successful applicants. So it’s not guaranteed.
The APR you’re offered for your unsecured personal loan will depend on your financial status and credit history.
How our personal loan comparison can help
Our personal loan comparison table gives you a list of offers from a range of lenders, with different rates and terms.
Some people might think it seems easier to just get a loan from the bank. But the best unsecured personal loans for you might not come from a bank.
To find the best personal loans available to you, it’s useful to think about this checklist:
Monthly repayments: This is how much of your personal loan you pay back each months. Some lenders might give you the option of taking repayment breaks, but it might cost more overall.
Representative APR: This is the interest you’re charged for borrowing through your unsecured loan. Look for a personal loan with a low APR, and check if the interest’s fixed or variable.
Total payable: This is how much you’ll pay back overall, including your monthly payments and interest on your unsecured personal loan. The shorter your borrowing term, the less you’ll pay back.
Fees: With most personal loans, you’ll have to pay early repayment charges, or fees for late payments. Some brokers charge fees for arranging your loan too, so make sure you check the terms before you apply.
How much does a personal loan cost?
If your lender thinks you are at risk of missing your repayments, you will be charged more for your loan. Some of the factors that affect the cost of your loan include:
How much you borrow: The more you borrow, the higher your monthly repayments will be
How long you borrow for: Short term loans may come with a higher monthly cost, because they may charge more interest than longer term loans
Your credit history: You may pay a higher interest if you have bad credit
Your income: If your income is low, you may be charged a higher interest rate
Once you’ve found the best personal loan for you, it’s a good idea to use our loan repayment calculator. It’ll show you how much you’d be repaying each month with that particular personal loan. Compare the best unsecured loans for your needs by looking at how much you’re borrowing, how much time you need to pay it back, and the fees. It’s a good way to get your finances in order and avoid any nasty surprises later.
It’s important that you only apply for personal loans you can afford to pay back. Here’s some information about what happens if you can't payback your loan.
What can I use an unsecured personal loan for?
When you do a personal loan application, you’ll be asked what you’ll be using the money for. Some lenders let you list multiple reasons. For example, you could say you want to borrow £10,000, which will be spent on home improvements, a car and a holiday.
Typically, unsecured personal loans are mostly used for making a big purchase, or for home improvements, but you can you use it however you wish, as long it's not specifically excluded in the loan agreement.
The cost of a personal loan is fixed, so your repayments stay the same every month, so you can plan your budget by factoring in the repayments.
An unsecured loan to renovate your home
A home improvement loan can be a good way to increase your home’s value. Our home improvement loan comparison table will help you find the best unsecured personal loans. Then you can renovate your home in the most cost-effective way.
The best personal loans to finance a car
If you need money for a car, use the personal loan comparison table above to see if any of the unsecured loans would work for you as car finance.
You can also check the cost of car finance using our car finance calculator, and apply through our credit broker. You’ll get a quick decision and could even find a car through the service, too.
Which lender should I choose for the best personal loan?
Getting the best personal loan rates is unique to you and your circumstances. A bank isn’t always the place to find the cheapest personal loans with the best interest rates.
Interest rates affect all kinds of credit, borrowing and savings. They’re set by the Bank of England in the UK.
If you get a loan offer from your bank, it’s a good idea to compare it with at least two other personal loans. Then you can make sure you’re getting the best possible personal loan rates available.
Banks vs online lenders
Lots of different kinds of lenders offer unsecuredl loans. Finding the best personal loans for you will depend on your loan requirements and how you want to communicate with your lender.
If you’d rather speak to someone in person about your loan, a bank might be a better place for you to look for the best unsecured loans. If you’re happy to do everything online, an online lender might be able to offer you the best personal loan rates.
Can I get an unsecured personal loan with bad credit?
A bad credit loan lets you borrow even if your credit history’s poor. But you might not have a big choice of lenders, and you’ll have to pay more interest.
If you need more than you can get through an unsecured personal loan, you could think about getting a secured loan. They’re tied to something you own, like your house or car, but it means that if you can’t pay the lender can take it from you.