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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.
Personal loans can be used for almost anything. Some of the most common reasons people take out a personal loan:
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:
|Total amount repayable||
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.
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.
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.
The pros and cons for different credit options depend on your situation. Some of the potential benefits of a personal loan:
Things to think about:
Different lenders have different criteria – it could include:
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.