Best Value Personal Loans
Here we have compared the cheapest / lowest APR% personal loans depending on your situation, credit history, and collateral.
Best Personal Loan to Buy a Car
If you’re looking to buy yourself a new car, then a personal loan from a bank or other building society will usually be your cheapest way.
The things to consider are the annual interest rate (APR) and the repayment terms (including any early / late fees). However always check with the car dealer first, as they can often offer cheaper 0% finance to incentivise lending through them.
Best Personal Loan to Consolidate Debt / Credit Cards
If you’ve got into debt trouble, or you simply want to combine your existing credit lines into a better value option, then debt consolidation loans can be the perfect option for you.
Multiple credit cards and bad loans such as payday loans can have escalating interest rates that make it very difficult to pay off the loan (or even repay the interest!).
That’s where a consolidation loan comes in. You borrow the amount to pay off the debts, reducing your loans to one that should have more manageable payments.
Best Personal Loan to Start a Business
Setting up a business is a risky venture, with a lot of small businesses failing within the first 3 years. That’s why taking out a personal loan for this is considered a risky investment, because you will be solely responsible for paying it back if things go wrong.
Some banks will have terms of service that prohibit using a personal loan for business purposes, however these different between lenders.
What is a personal loan?
A persona loan is generally an unsecured loan, where you apply to borrow a specific amount of money over a fixed period of time. You agree to repay the loan over a fixed period of time, with fixed monthly payments.
The lender of the money will make money themselves by charging you interest on the amount you wish to borrow, which means your repayments contain 2 parts:
- Part of the repayment of your loan amount.
- Part of the interest on the loan.
You gain the advantage of getting cash that you need upfront, and the lender makes a good return on investment for their money.
Types of personal loans include:
- Guarantor loans
- Instalment loans
- Payday loans
- 24 month loans
- Online loans
- Holiday loans
- Small Loans
- Debt consolidation loans
- Loans for young people
- Interest free short term loans
- Cash Generator Loans
How do I apply for a personal loan?
To apply for a personal loan, simply find a provider that is offering a deal that fits your criteria (interest rate, credit rating, security / unsecured, etc) and fill out the necessary details on the application.
You will then usually be assessed by the provider to determine how risky you are (usually using your credit report), and you will hear back from them within a few hours / days if your application has been approved, and how much / at what rate they are willing to lend to you.
It can take only minutes to apply for a loan online if you have the correct proof and documents ready. If you’re applying for a secured loan however it may take slightly longer, as the lender will need to assess the value of the property or items used as security.
What is my credit score and how does a personal loan affect it?
A lender assessed whether or not your are a good or risky person to lend to based upon your credit score. Your credit score (also known as your credit rating) is a document that looks at your history or borrowing money and paying off your debts, checking for things like missed payments, how long you have borrowed money for, and how much money you are currently owing to lenders.
The lender will then give you a score (which differs depending on each individual lender’s process) to determine how risky you are, and therefore how much money they can safely lend you and at what interest rate it should be at.
Applying for credit and getting rejected shows up on your credit report as a negative (if someone else rejected you, there must be a reason?) and so if you apply for a personal loan and get rejected it could lower your credit score.
Also if you take out a personal loan this will contribute to the total amount of money you owe, which will be marked on your credit report.
How much money can I borrow with a personal loan?
There are quite large limits on personal loans if you have the right accounts and credit history. You can borrow money up to £50,000 for example if you’re a First Direct current account customer, at a rate of around 6.7% representative APR.
However borrowing large amounts of money on a personal loan is quite a large commitment, so you may wish to consider combining other forms of credit to get to your target amount instead.
Types of Personal Loans
There are two common types of personal loans that you may be applicable for.
Unsecured Personal Loans (common)
Here you are borrowing money solely on the basis that you have agreed to pay it back with interest, with no other forms of security provided to the lender.
Secured Personal Loans (less common)
A secure loan uses fixed assets that you own to secure the loan against. Think of it as a guarantee to the loan provider, so if you cannot repay the loan they can recover the money by taking away the asset you provided as security.
For example you could secure a loan against a car, your house, or other high value items such as expensive jewellery.
Personal Loan to Pay Off Student Loans – Should you do it?
In the United Kingdom, it is very unlikely that you will save yourself money by paying off your student loan with a personal loan.
The Student Finance England contracts are usually designed to give students a very good interest rate, in order to incentivise going to University.
That being said you should always look at your current amount owed and interest rate, and decide if you would be better to get a personal loan.
We also have a great guide on loans for young people, where we go into how to get a credit score and other money saving tips.
Personal Loans for Self-Employed
It can often be difficult for freelancers or other people who are self-employed to get a loan. This is simply because to a lender it represents a more risky investment, as you may not have your income secured over a long period of time (in comparison to someone employed by a company).
Choosing your existing bank first can be your best option, because they have a detailed view of your current accounts and so can verify your income more easily. You can also browse our best unsecured business loans here.
You should prepare lots of proof of income statements to make your application more likely to succeed. Having an official business bank account is also important to help increase the trust from your bank.
Lenders who provide self-employed personal loans:
Whichever you choose, make sure that you have a backup plan for making repayments if the business runs into cash flow problems.
Personal Loans for Pensioners
If you’re retired or coming up to retirement, and you’re worried about how to borrow money, then fear not because you do have some options.
Contrary to popular opinion it is actually a lot harder to pensioners to get unsecured loans because of the lack of regular income.
There are specialist lenders out there however, and we recommend you check out the loans from Saga, who can lend you up to £15,000 over 1 – 5 years with a rate of 7.9% APR representative fixed.
Personal Loans for Unemployed / No income Households
If you’re unemployed, although it will be a lot harder and more expensive to borrow money (because of the risk involved for the lender), it is still possible.
Benefits are usually not counted as income when applying for these loans.
It will help you a lot if you’re a home owner, as this can be used as security for your loan.
You could also consider using a guarantor for your loan, as this helps lenders trust you based upon their credit rating.
Personal Loans with No Guarantors
A guarantor is someone who will help to pay the loan off for you if you run into trouble and cannot pay.
If you want a personal loan without a guarantor then this is possible if you have a reasonably good credit rating.
Compare our best rates above to see the offers you can get without a guarantor.
Personal Loans for Bad Credit / No Credit History
If you have no credit history or a bad credit report, then you can still get a loan, but it will end up being more expensive for you. This will be because you represent a riskier investment to the lender, and so your APR% will be higher, and most likely you will have to borrow less money, for a shorter time period.
Personal Loans no Bank Account / Documentation / Proof of Address
If you don’t have a bank account, or you don’t have the documentation provided (such as payment slips or proof of address) then there may still be some lending options available to you.
You may be eligible for what are called small cash loans, which are often cash advances paid to you via someone who comes around to your home. This should be a registered company, make sure to avoid what are called “loan sharks”.
Some example companies you can choose from:
Like any loan, make sure to check the terms of your repayments first to make sure you can keep up with them.
Compare Alternatives to Personal Loans
Is a personal loan even right for you? We have compared them below with other popular and less well known credit alternatives to help you make an informed decision.
Personal Loans vs Credit Cards
In a lot of cases choosing a credit card can be a much cheaper way of borrowing than a personal loan. That is because a lot of credit cards offer a 0% interest period, which allows you to effectively borrow money for free for a certain amount of time.
This compares with a loan where you will have to pay a fixed amount of interest.
The key here is to work out how much you want to pay, as many credit cards or overdrafts will have fairly low limits of up to £2,000 on them, and so any larger loans will always be a better option if you need that much.
To compare the best 0% credit cards click here.
Personal Loans vs Car Finance
Personal loans and car finance are fairly similar. They are both personal loans, where car finance is usually a particular car company or dealer that is offering you the finance directly as opposed to a bank.
The key here when comparing the two is to look at the APR%, the early repayment fees, and the duration of the loan. These will show you whether or not your particular car finance deal is better or worse than your best personal loan deal.
Then you simply choose whichever one is the cheapest and has the best terms.
Personal Loans vs Line of Credit / Overdrafts
A line of credit is also known as an arrange overdraft, where you agree with your bank an amount of money that you can borrow up to on your account, and where you are only charged interest if you go into this line of credit.
Rates can be fairly expensive, with some providers going up to between 10 and 14%.
A personal loan is usually a cheaper option than a line of credit, particularly if you’re borrowing a larger amount of money.
Personal Loans vs Mortgage
The difference between a personal loan and a mortgage is that the latter is secured against a home. This will often mean that a mortgage gives you a better APR% than a personal loan, as the personal loan isn’t secured against anything and is therefore riskier for the lender.
For buying a home a mortgage is a no brainer, because you usually won’t ever be able to borrow such a large amount of money as you need for a house on a personal loan agreement.
If you don’t have a large deposit but you want a new home, then read more about 0% deposit mortgages here.
Personal Loans vs Balance Transfer / Cash Advance
Again the difference between a balance transfer / cash advance and a personal loan is negligible. It simply boils down to which one will offer you the best value for money.
Cash advances are often for smaller amounts of money, so a personal loan will be better than an advance / transfer if you want to borrow any more than £1,500.
The interest rates for transfers are often quite high as well, so make sure to always check first.
You can compare the best personal loan rates above.
Personal Loan Frequently Asked Questions
Here are some of the common questions people have about this type of loan. If you have a question, then feel free to email us at [email protected].
How does a personal loan affect my current loan or mortgage?
Applying for a new personal loan should not affect your current debt (loans, mortgages, etc) because these agreements were taken out in the past.
However if it affects your ability to afford your current debt, then that could create problems for you.
To learn more about managing your debt effectively click here.
How does a personal loan affect my taxes?
If you’re self employed then you can offset your interest on your personal loan as a business expense. This can also be done for banking, overdrafts, credit card charges, and interest on business loans.
To find out more about how UK tax and banking goes together see the Gov.uk website.
Can a personal loan be transferred to a credit card, loan, another bank or another person?
Yes, once you have been approved for a personal loan and you have the money in your bank account you can transfer it to wherever you like. This is a great way to consolidate you debt if you have multiple credit cards or bad / high interest loans.
Can I use a personal loan for business?
Whether or not you can use a personal loan for a business depends on the terms of service of that particular lender, so contact them before choosing this option.
You may also want to consider the risk of personal debt for business purposes, due to many businesses failing.
Which documents do you need for a personal loan?
For a personal loan application, you may need the following documents to hand:
- personal information – name, age, address, passport, drivers licence, etc.
- financial information – proof of income, bank statements, etc.
- payment information – bank details, sort code, account number, etc.
If you’re looking to apply for a loan online then you will need scanned copies of these documents to send to the lender.
Why did I get rejected from my personal loan?
If you got rejected for a personal loan it is probably because of one of these reasons:
- You tried to borrow too much money for your credit rating.
- You didn’t meet one of the lender’s requirements.
- The security you provided wasn’t high enough value.
- Your loan guarantor didn’t have a good enough credit rating.
One of the best things you can do to improve the chance of you being accepted for your loan is to improve your credit score.
Examples of a personal loan agreements
If you want to see what a loan agreement looks like, or you want to create a legal agreement between friends for a loan, then you can find them on the following websites:
If I pay off my personal loan early do I pay less interest?
In a perfect scenario, if you repay your loan before it is due then you should have paid less interest. However companies will often secure this loophole by applying early repayment fees into loan contracts, which will make you pay an extra amount of money for paying off early.
You may still pay less interest in total however, but it will depend on the agreement, so check your terms and conditions or contact your lender to see if it would be cheaper to pay it off sooner.