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£5,000 loans
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A cash lump sum can be handy for all sorts of reasons, like if you need to make some home renovations or buy a new car, but taking out a loan is a serious financial commitment.
Find out everything you need to know before you apply for a £5,000 loan.
What types of loans are available for borrowing £5,000?
There are a few different loan options available including:
Personal loans
The lender provides you with a lump sum and in return you’ll be required to make monthly repayments for a set amount of time until the original amount and interest accrued is paid off.
Secured loans
These generally tend to be for larger sums of money because they’re guaranteed against an asset, like your house. This means that if you fail to repay the loan you could lose your home.
Guarantor loans
These types of loans may be useful if you have bad credit. A family member or friend is named the guarantor on the loan, so if you miss your repayments, they’re liable to pay off the debt.
Payday loans
To be approached with extreme caution, these types of loans have a really high interest rate. They’re supposed to help tide you over until your next pay day if you run out of money, but in reality they’re an extremely expensive method of short-term borrowing
Debt consolidation loan
Helps you combine all your debt in one place and can be useful if you’re repaying multiple debts with high interest rates. It’s important to watch out for any fees and charges
Bad credit loans
It’s possible to be accepted for a loan if you have a poor credit score, but the interest rate will be high as you’re seen as more of a risk to the lender, and you may even need a guarantor
Would a secured or an unsecured loan work better for a £5,000 loan?
This will depend on your circumstances.
Unsecured loans usually start from around £1,000, so a £5,000 loan is a relatively small amount which means that it should be a manageable amount to repay.
You may find a better rate on a secured loan, as the lender has security in the form of your house (or car, in some cases), but that also means that it’s at risk if you default on your payments.
It’s possible to get a longer term on secured loans, which can be handy if you want to make smaller monthly repayments but can mean that you end up paying more overall.
Alternatives
There are other options to consider before applying for a loan:
Credit cards – It may be possible to get a 0% interest purchase credit card. This will enable you to spend within the introductory period without being charged interest, as long as you pay at least your minimum monthly repayments. The credit limit you’re given will be determined in part by your credit score, so if it isn’t great, you may find that your limit isn’t very high.
A 0% balance transfer card can help if you’re looking to consolidate existing credit and store card debt. They tend to have lengthy 0% interest periods, which means you can pay off your debt comfortably without paying interest on it. There’ll be a fee to do this, which is usually charged as a percentage of the amount you’re transferring.
Save up – Create a budget and see where you can cut back on your monthly outgoings, you can then syphon this money into a savings pot until you have the amount you need.
Interest-free overdraft – If you don’t need the amount all in one lump sum, you may want to use your overdraft facility, if it’s interest free, and pay it back as and when you can. Just make sure that you don’t go over your overdraft limit as you’ll be charged hefty fees.
Can I get a £5,000 loan with bad credit?
It’s possible to get a loan if you have bad credit, but you may find that the ones available to you have high interest rates and expensive admin fees. This is to offset the risk that the lender perceives you to be.
You may have more luck with a secured loan or guarantor loan, which could open up more options.
Use our smart search tool to find loans that you’re more likely to be accepted for to minimise the risk of a rejected application further harming your credit score.
Am I eligible for a £5,000 loan?
This will depend on whether you meet the eligibility criteria of the lender. Usually this means that you would need to be:
- Over 18 years old
- A UK resident
- Employed
Lenders will also need to assess your income to see whether you’re able to make the repayments comfortably and perform a hard search on your credit report to analyse whether you’re likely to default on your payments.
This will determine whether you’re offered a loan and what the terms and conditions of it will be.
How do I apply for a £5,000 loan?
Simply use our smart search to find the loans you’re more likely to be accepted for (without affecting your credit score).
All you need to do is enter some details about yourself and the type of loan you require.
If you find the right option for you, click ‘Apply’ and you can complete the application process.
Can I get a £5,000 loan for a one-off purchase?
It’s up to you what you spend your loan on, but your lender may want to know that it isn’t being used for things like gambling or as a loan to a friend.
What to consider before taking out a loan?
The most important thing to consider is whether you need one at all. Think about other options which could suit your circumstances better.
Compare interest rates to find the best one available and think about the term length. After all, the longer the term, the more you’ll pay overall.
Look at early repayment charges (ERCs) which may affect whether you’re able to make overpayments if you came into money unexpectedly.
Top tips for getting the most out of your loan
Make a detailed plan of how the money is to be spent, so that it’s not frittered away on expenses that pop up during the loan term. The last thing you want is to not have enough to cover the cost of what you originally took it out for.
Always make your repayments on time and in full to avoid negatively impacting your credit score, which can affect your ability to access credit in the future, for instance if you were applying for a mortgage.
Opt for the shortest loan term you possibly can, where you can still easily make your monthly repayments. That way, you’ll pay less interest overall and save yourself some money.
If you find yourself struggling to make your repayments, speak to the lender before you default. They can help you reach a solution to ease the pressure until you’re back on your feet.
You may want to consider income protection insurance, this will pay out if you’re unable to work due to certain circumstances (usually accident, sickness or unemployment). This can help cover your loan repayments until you’re able to return to work.
Frequently asked questions
A soft search is a preliminary check of your credit report which doesn’t leave a mark on it.
Our smart search tool performs a soft search to show you which loans you have a higher probability of being accepted for before you apply, based on your credit score.
Your monthly repayment amount will be dependent on the details in your application, which will determine how much interest you’re charged.
The higher your interest rate, the more expensive your monthly repayments.
The longer your loan term, the more expensive your loan will be overall. This is because even though the monthly payments will be smaller, you’ll be paying more interest over the term.
Try to get the shortest loan term possible that doesn’t leave you out of pocket each month.
To be accepted for the best rates, you’ll need to have an excellent credit score, but this isn’t the only criteria that lenders assess. So, although it will improve your chances of getting the lowest interest rates, it’s not a given.
It’s possible to repay a loan early but whether it’s worth it will depend on if it has ERCs.
An expensive early repayment charge may outweigh the benefits of paying the loan off before the end of the term.
If you miss a repayment, your lender will get in touch with you to find out what’s happening. They’ll request that you make the payment as soon as possible.
Continue to miss your repayments and you may be served with a default notice which can lead to a collection agency taking your debt, a request for the loan to be paid back in full immediately or legal action.
Speak out if you’re struggling and get in touch with a debt charity like StepChange or National Debtline to receive free advice.
Yes, you can use a loan to consolidate your existing debts, so they’re not subject to differing interest rates.
You can then pay off the entirety of your debt steadily over the loan term.
Related guides
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