Personal loans

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Personal loans

Personal loans let you borrow money and pay it back over a set length of time, usually at a fixed interest rate. They're also known as unsecured loans as they don't require you to provide an asset – like your house – as security to the lender.

What can a personal loan be used for?

Personal loans can be used for almost anything. Some of the most common reasons people take out a personal loan:

  • Buy a car
  • Pay for a wedding
  • Pay for a holiday
  • Fund home improvements
  • Consolidate debt

How do personal loans work?

Most personal loans have fixed interest rates. The rate you're offered will typically depend on the lender's standard rates, how much you're borrowing and what your credit history looks like. If you've got a high credit score, you can often get the better interest rates.

The term for a personal loan typically ranges from one to five years. In most cases, the longer you have your loan, the less you pay each month, but you’d pay more interest overall.

For example, let's say you borrow £5,000 at a fixed annual percentage rate (APR) of 3.8%. Your payments could look like this:

3 years 5 years
Monthly payment
£147.03 £91.49
Total amount repayable
£5,293.08 £5,489.40
Total charges
£293.08 £489.40

These calculations are for illustrative purposes and are not based on an actual product.

Having the loan for three years would cost you more each month, but less overall. Having the loan for five years would cost you less each month, but more overall. It's worth balancing out what you can afford every month, against how much interest you'd have to pay overall.

How much can I borrow?

Personal loans tend to be for amounts up to around £25,000 but there are some lenders who will offer personal loans up to £40,000.

Can I have more than one personal loan?

There's no rule to say you can’t have more than one personal loan but it's unlikely a lender will give you two personal loans at the same time or within a short frame of time. Whether you're approved will depend on a range of factors – the lender will probably pay close attention to your credit information that tells them how much debt you have, when you last applied for credit and if you're keeping up with your payments. They'll also look at your income and other expenses to make sure you can afford all your financial commitments.

What are the features of a personal loan?

The pros and cons for different credit options depend on your situation. Some of the potential benefits of a personal loan:

  • Your loan repayments should stay the same each month, making it easier to budget.
  • The interest rate is typically fixed so you know upfront how much the loan will cost you overall.
  • You can agree with the lender the length of time you take to repay the loan (up to the lender's maximum).

Things to think about:

  • Most lenders will only offer personal loans for £1,000+ so if you need less than that, it might not be the best option. Try to avoid borrowing more than you need.
  • Personal loans can cost more than other forms of credit, like 0% purchase credit cards.

Who is eligible for a personal loan?

Different lenders have different criteria – it could include:

  • Your credit information – how well you've paid back mortgages, credit cards, overdrafts, loans and even utility bills.
  • What your current credit balance is.
  • Your employment status and income.
  • The loan amount and purpose.
  • Your regular expenses.

You can find out how eligible you are for a personal loan before you apply by searching with Experian. Remember Experian is a credit broker, not a lender.

We use your credit information and match it with the lender's criteria to give you your eligibility rating for each loan.

When you apply for credit, it's recorded on your credit report. Too many applications in a short space of time can look bad to lenders. Searching for credit with Experian is a 'soft search' so lenders don’t see this on your credit report.

Things to watch out for before you apply for a personal loan

  • There can be fees for taking out a loan, so don't just compare the different interest rates. Look at the APR – which includes all fees and interest – to help you better compare the different options.
  • Make sure you stick to your payments to avoid extra charges and negative marks on your credit report.
  • Most personal loans have fixed interest rates – but some have variable rates, which mean they can go up or down. Make sure you check this before you apply. Would you be able to afford the payments if the interest rate went up?

3 steps to applying for a personal loan with Experian

  1. Check your Experian Credit Score for free with a free Experian account to get an idea of where you stand financially.
  2. Get your credit score in shape as lenders will check your credit information to decide if they should lend you money and what interest rate they’ll charge you.
  3. Search for personal loans using our comparison service, so that you can compare different deals and find out how likely you are to be approved before you apply.