Can a Loan Help Me? When Borrowing Makes Sense and When It Doesn't
Published 6th of January 2017·Updated 12 April 2026
Reviewed by: Reviewed for accuracy April 2026
A loan can genuinely help if you face a one-off, unplanned expense such as a broken boiler or emergency car repair and you have a reliable income to repay it. It is not a solution if your monthly outgoings already exceed your income; in that situation, borrowing more makes the problem worse. Knowing which situation you are in before you apply is the most important step.
Short Summary
The most common type of loan for everyday financial emergencies is an unsecured personal loan. You do not need to put up your home or car as security, and amounts typically range from £500 to £25,000.
Lenders will check your credit file with one of the three main credit reference agencies in the UK: Experian, Equifax and TransUnion. A good credit score gives you access to lower interest rates; a poor score means higher rates or rejection.
Short-term loans carry significantly higher interest rates than standard personal loans. The FCA caps the cost of a high-cost short-term credit loan at 0.8 per cent per day, with a total cap of 100 per cent of the amount borrowed.
If you are struggling with ongoing debt rather than a one-off shortfall, contact StepChange (0800 138 1111) or Citizens Advice before taking out any new credit. Borrowing to cover regular living costs tends to make things worse, not better.
What types of loan are available in the UK?
There are two main categories of personal borrowing:
Unsecured personal loans do not require any collateral. Banks including Barclays, HSBC, NatWest and Lloyds, as well as specialist lenders and credit unions, offer these. Terms typically range from one to seven years. The interest rate you receive depends on your credit score and income. As of 2026, representative APRs on unsecured personal loans from mainstream lenders typically range from around 6 to 30 per cent, though the rate offered to you personally may differ.
Secured loans are tied to an asset, usually your home. Because the lender has security, rates are often lower and you can borrow larger amounts. However, if you cannot keep up repayments, the lender can take steps to repossess your property. Secured loans are not suitable for covering short-term cash shortfalls.
| Loan type | Typical amount | Typical term | Collateral needed |
|---|---|---|---|
| Unsecured personal loan | £500 to £25,000 | 1 to 7 years | No |
| Secured loan | £5,000 to £100,000+ | 5 to 25 years | Yes (usually your home) |
| Short-term (high-cost) loan | £100 to £1,500 | 1 to 12 months | No |
| Credit union loan | £500 to £15,000 | 1 to 5 years | No |
What do lenders check before approving a loan?
Lenders assess your application using several factors. They will check your credit report through one of the credit reference agencies (Experian, Equifax or TransUnion), look at your income and existing outgoings, and verify your identity and address. Most lenders require:
- Proof of identity: a valid passport or driving licence
- Proof of address: a utility bill or bank statement dated within the last three months
- Proof of income: recent payslips, bank statements or a Self Assessment tax return if self-employed
Lenders must also carry out an affordability assessment under FCA rules. This means they are required to check that the repayments are affordable given your income and existing commitments, not just that you want to borrow.
What are the risks of taking out a loan?
The main risk is that your circumstances change and you cannot keep up repayments. Missing loan repayments leads to penalty charges, damage to your credit file and, if the situation continues, potential debt enforcement action. A missed payment can stay on your credit report with Experian, Equifax or TransUnion for up to six years.
Short-term and high-cost loans carry additional risks because of their higher interest rates. Even within the FCA's cost cap, a £300 short-term loan repaid over three months will cost you more than the same amount borrowed from a bank over the same period. Use them only as a last resort.
Never borrow from an unlicensed lender. Loan sharks operate illegally and use aggressive or threatening tactics to collect debts. Check that any lender you approach is authorised by the FCA at register.fca.org.uk before submitting any personal information.
When should I seek free debt advice instead of a loan?
If any of the following apply, speak to a free debt adviser before applying for more credit:
- You are already struggling to pay existing bills or debts
- You need a loan to cover regular living costs such as rent, food or utilities
- You have already taken out loans to cover previous loans
- Your total debt feels unmanageable
StepChange Debt Charity (0800 138 1111) and Citizens Advice both offer free, impartial debt advice. They can help you understand options such as a debt management plan, a breathing space period, or a debt relief order, which may be more suitable than taking on new borrowing.
Frequently Asked Questions
Can I get a loan with a bad credit score?
Yes, though the interest rate will be higher and some mainstream lenders may decline your application. Lenders such as Everyday Loans and Amigo Loans have historically catered for poor-credit borrowers, though rates are significantly higher than high-street alternatives. A credit union may also be worth approaching; they tend to consider your overall circumstances rather than just your credit score.
How quickly can I receive money from a personal loan?
Many mainstream lenders transfer funds within one to three working days of approval. Some specialist short-term lenders advertise same-day transfers for approved applications submitted before a certain time. Check the lender's stated processing time before applying if speed is critical.
Does applying for a loan affect my credit score?
Yes, a full credit application leaves a hard search on your credit file, which is visible to other lenders for 12 months. Multiple applications in a short period can make you look financially stretched. Use an eligibility checker (offered by lenders including MoneySavingExpert's eligibility tool and ClearScore) to check your likelihood of approval before making a formal application. Eligibility checks use a soft search and do not affect your score.
What is the difference between APR and the interest rate?
The interest rate is the cost of borrowing before fees. APR (Annual Percentage Rate) includes the interest rate plus any mandatory fees, expressed as an annual figure. APR gives a more accurate picture of the total cost of borrowing. Always compare APR rather than just the headline interest rate when assessing loan offers.
Can I repay a loan early?
Yes, but check the early repayment charge first. Some lenders charge up to 1 to 2 months' interest for early settlement. Others allow early repayment without penalty. If you think you might repay early, choose a lender with no early repayment charge and confirm this in writing before signing.