Personal loans

When you're using credit to pay for a big purchase, a personal loan can often be the cheapest option. Having regular monthly repayments lets you see when the debt will be repaid and makes it easier to budget. So what else do you need to know?

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If you need to borrow up to £25,000 then a personal loan could be one of the cheapest ways to do it.

These products can be one of the cheapest ways to borrow up to £25,000

The rate you pay depends on your circumstances, but you'll usually find it's between 6% and 13%.

That's much cheaper than most credit cards, which usually charge upwards of 18%.

We recommend using the smarter search gadget to find which lenders are most likely to offer you a deal.

That way you can avoid unnecessary rejections, which damage your credit rating. Anyway, no one likes rejection.

Lots of small debts cost more

Generally speaking, the more you borrow, the lower the rate. So you'll pay a higher rate of interest on a personal loan for £3,000 than on a £7,500 debt.

Personal loansThat means that if you have a number of smaller debts, you could be paying far more overall. And it's so easy to end up with lots of little loans - maybe a balance on your credit card, a small amount left on your car's finance, an overdraft you can't shift.

Consolidate these debts into one bigger personal loan and you could bring the cost of your credit right down. It also means you only have one debt to keep track of.

Be aware that you may need to pay an early redemption charge if you end a loan before it finishes, so factor that cost in when you're working out what you could save.

If you're planning to apply for a new loan then think about consolidating all your debt at the same time.

Secured versus unsecured loans

When you want to borrow a larger amount then an unsecured personal loan might not be the best way.

Because you repay a set amount each month, a personal loan has a clear end date and it’s easier to budget for

Homeowners with equity in their properties can usually borrow larger amounts for longer periods by securing the debt against their homes. These are most commonly used for home improvements or expansions, or consolidating larger amounts of debt.

If you have equity in your home and want to borrow a substantial amount then a secured loan might be a cheaper option than an unsecured personal loan. Fortunately, you can compare those, too, but always remember that your home could be at risk if you do not meet the repayments.

What happens if I lose my job?

If you're getting into debt, you need to know you can afford the repayments if disaster strikes. We recommend having at least three-to-six months' worth of your salary saved in an easy-access account.

You can take out cover to protect you if you lose your job, or fall ill and cannot work. These insurance policies make repayments on your behalf for a set period, usually between one and two years.


Unfortunately, some lenders were caught mis-selling these policies to people who didn't need them and pressuring others into taking them. That's given payment protection insurance (PPI) a bad name, but it can still be a useful way to protect yourself.

Bear in mind that this insurance doesn't suit everyone. If you want to use PPI to protect your personal loan, make sure you're happy with the terms and conditions.

You can read more about this kind of cover and compare policies on our PPI page.

What else should I consider?

Broadly speaking, there are two types of personal loans to choose from:

Fixed rate loans: You pay a fixed amount every month throughout the term of the deal, giving you peace of mind and the ability to budget your outgoings

Variable rate loans: The interest rate you pay may fluctuate depending on the Bank of England base rate or market forces. This means that your monthly repayments and the total amount you repay over the term could increase or decrease. If interest rates go up, you could repay a lot more than you originally budgeted for or, in the worst-case scenario, be unable to meet your repaymentsWallet

There are many additional factors to consider:

Eligibility criteria: Many products have strict eligibility terms such as age (usually you must be 21-65) and residency. In most cases you must be a UK resident for at least three years and have a current account and a regular income

Early repayment fees: Some lenders will charge a penalty if you repay the loan early (because they will not be earning the interest they expected). This fee can vary, but it is usually the equivalent of one or two months' interest, depending on how much notice you give

Other fees: Check the terms and conditions thoroughly for other fees, such as arrangement fees

Availability of funds: Lenders may charge a fee for same-day transfers. With normal transfers (usually two-to-three working days) you can usually avoid this fee

Payment breaks/deferment periods: Some lenders offer 'payment holidays'. While these can be beneficial if finances are tight, bear in mind that interest will continue to be charged, meaning that the total amount you repay will increase

When is a personal loan not for you?

At, we want you to find the best credit deal possible. If you only need a small amount of credit then some bank accounts offer interest-free overdrafts - compare current accounts to find the right one for you.

Some credit cards give you several months of interest-free borrowing when you first sign up. Others let you transfer any existing debt onto them and charge nothing for a year or more, giving you a good chance to clear the balance. Compare credit cards to see if that's a better option for you.

But if you're sure a personal loan is the best way for you to borrow then compare providers and let us help you find the right deal.

By Felicity Hannah