A Beginner's Guide to Personal Loans in the UK
Published 23rd of August 2016·Updated 27 April 2026
Reviewed by: Reviewed for accuracy April 2026
A personal loan lets you borrow a fixed sum of money and repay it in fixed monthly instalments over an agreed term, typically one to seven years. For larger purchases or consolidating existing debts, a personal loan often costs less than using a credit card or overdraft, provided you qualify for a competitive interest rate.
Short Summary
Personal loans in the UK are either unsecured (no security required, typically £1,000 to £25,000) or secured (your home is used as collateral, usually for larger amounts).
The Annual Percentage Rate (APR) is the key figure to compare. It includes the interest rate and any compulsory fees, expressed as a yearly cost.
Lenders are only required to offer the advertised "representative APR" to 51 per cent of successful applicants. The rate you are actually offered may be higher, depending on your credit score.
Repay the smallest amount over the shortest term you can genuinely afford. Stretching the term to lower monthly payments significantly increases the total you repay.
What types of personal loan are available in the UK?
There are two main types: unsecured and secured. An unsecured personal loan does not require you to put up any asset as collateral. These are the most common type for borrowing between £1,000 and £25,000. High-street lenders including Barclays, HSBC, Nationwide, and Lloyds all offer unsecured personal loans.
A secured loan uses your property as collateral. Because the lender has security, interest rates are often lower than for unsecured loans. The risk is significant: if you miss payments, the lender can ultimately repossess your home. Secured loans are generally only appropriate for homeowners borrowing larger sums (£25,000 and above) who are confident in their repayment ability.
| Loan type | Typical loan amount | Typical APR range | Security required |
|---|---|---|---|
| Unsecured personal loan | £1,000 - £25,000 | 3% - 30% depending on credit score | None |
| Secured loan | £10,000 - £100,000+ | 4% - 20% | Your property |
| Guarantor loan | £1,000 - £15,000 | 30% - 50%+ | A guarantor with good credit |
| Credit union loan | £50 - £15,000 | Capped at 42.6% APR | Usually none |
How does APR work and why does it matter?
APR stands for Annual Percentage Rate. It combines the interest rate with any compulsory fees into a single figure that represents the yearly cost of the loan. A loan with a lower APR costs less to borrow than one with a higher APR, assuming the term is the same.
The "representative APR" shown in advertising is the rate offered to at least 51 per cent of successful applicants. If your credit score is below average, you may be offered a higher rate than advertised. Use an eligibility checker (available on MoneySuperMarket, MoneySavingExpert, and most lender websites) before applying formally. These use a soft credit search that does not affect your credit score.
How to work out what you can afford to repay
Before applying, calculate the maximum monthly repayment you can comfortably make without affecting your essential bills. Then use a loan calculator to find the combination of loan amount and term that fits within that figure. Loan calculators are available free on MoneySuperMarket and the Money Helper website at moneyhelper.org.uk.
The general principle: borrow the minimum you need, at the lowest rate you can get, over the shortest term you can genuinely afford. Borrowing £10,000 at 8% APR over three years costs around £1,300 in interest. The same loan over seven years costs around £3,100 in interest. The monthly payment is lower over seven years, but the total cost is significantly higher.
What fees should I look out for?
Some lenders charge an arrangement fee for setting up the loan, though this is less common on unsecured personal loans than it was previously. More relevant is the early repayment charge (ERC): if you want to pay off your loan early, some lenders charge up to two months' interest as a penalty.
Check whether the lender allows overpayments without penalty if you want the flexibility to pay more when you have spare cash. Halifax, First Direct, and several credit unions permit overpayments without charge.
Should I take out Payment Protection Insurance with my loan?
Payment Protection Insurance (PPI) was widely mis-sold alongside loans for many years; the FCA deadline for PPI claims passed in August 2019. New income protection or accident and illness insurance may still be offered with loans today.
Think carefully before accepting any insurance product sold alongside a loan. Read what it covers and what it excludes. Many policies exclude pre-existing medical conditions, self-employment, or voluntary redundancy. If you want payment protection, compare standalone income protection insurance independently rather than buying whatever the lender offers at the point of sale.
FAQ
What credit score do I need to get a personal loan?
There is no single threshold, as each lender sets its own criteria. Generally, a good credit score (rating of 881 or above on Experian's scale, or 604 or above on Equifax's scale) improves your chances of approval and a lower APR. If your score is below these levels, you may still be accepted but at a higher rate, or you may need to consider a credit union loan or guarantor loan instead.
Can I get a personal loan if I am self-employed?
Yes, but lenders will typically require at least two years of self-assessment tax returns or accounts to verify your income. Some lenders are more flexible about self-employed income than others. Credit unions, which are member-owned financial co-operatives, are often more accommodating than high-street banks.
How does a personal loan affect my credit score?
Applying for a loan generates a hard credit search on your file, which causes a small, temporary dip in your score. Making all repayments on time will improve your score over the loan term. Missing payments will have a negative impact and remain on your credit file for six years.
Is it better to get a loan from a bank or a comparison site?
Comparison sites (MoneySuperMarket, GoCompare, Confused.com) show rates from multiple lenders and are a good starting point. However, they do not show every lender; some credit unions, building societies, and direct-only lenders are not included. Check comparison sites first, then check your own bank's rates directly, as existing customers sometimes receive preferential deals.
Can I use a personal loan to consolidate credit card debt?
Yes, and this is one of the most common uses. If the personal loan APR is lower than your credit card interest rates, consolidating can reduce your monthly outgoings and the total interest you pay. Make sure you do not accumulate new credit card debt after consolidating; otherwise you will end up with both the loan and new card balances to repay.
What happens if I cannot make my loan repayments?
Contact your lender as soon as possible. Most lenders have a hardship team that can discuss payment holidays, reduced payments, or restructuring the loan. Do not wait until you have missed payments. If you are struggling with multiple debts, StepChange Debt Charity offers free advice and can help you work out a repayment plan that covers all your creditors.