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A personal loan is a fixed-sum borrowing agreement where you receive a lump sum and repay it in equal monthly instalments over an agreed term. Unlike a credit card, the interest rate and monthly payment are fixed from day one, making budgeting straightforward.
When you apply, the lender assesses your creditworthiness — including your credit score, income, employment status, and existing debts — and offers you a personalised interest rate. If approved, the money is usually paid into your bank account within 1–3 business days.
APR (Annual Percentage Rate) is the standardised measure of the cost of borrowing, expressed as a yearly percentage. It includes both the interest rate and any mandatory fees (such as arrangement fees), making it the fairest way to compare loans from different lenders.
Lenders advertise a "representative APR" which, by FCA rules, must be offered to at least 51% of successful applicants. The remaining 49% may receive a higher rate. This means you could apply and be offered a worse rate than advertised — always use eligibility checkers first.
| Credit Profile | Typical APR Range | Notes |
|---|---|---|
| Excellent (900+) | 6% – 9% APR | Best deals from high-street banks |
| Good (800–899) | 10% – 15% APR | Competitive rates still available |
| Fair (600–799) | 15% – 25% APR | Consider improving score first |
| Poor (below 600) | 25% – 40%+ APR | Explore guarantor or credit-builder loans |
Most UK unsecured personal loans fall within these parameters:
You are entitled under the Consumer Credit Act to settle a personal loan early at any time. However, most lenders apply an Early Repayment Charge (ERC) of up to 58 days' interest (roughly 1–2 months). To settle early, contact your lender and request a settlement figure, which is valid for 28 days.
Unsecured loans are the most common personal loans in the UK. They are not tied to any asset, so approval depends entirely on your credit profile. If you default, the lender cannot automatically seize your property, but they can pursue you through the courts.
Secured loans (also called homeowner loans or second-charge mortgages) are tied to your property. They typically offer lower rates, longer terms, and higher amounts than unsecured loans, but your home is at risk if you fail to keep up repayments. Only consider secured loans if you are certain you can afford the payments.
If your credit score is poor, a guarantor loan may be an option. A guarantor (usually a parent or close friend with good credit) agrees to cover your repayments if you default. Rates are higher than standard loans but lower than subprime unsecured loans. Note: if you miss payments, the guarantor's credit score is also damaged.
A personal loan application creates a hard search on your credit file, temporarily reducing your score. However, responsibly managing a loan (paying on time each month) can improve your score over time. Before applying, use a lender's eligibility checker — these use soft searches which do not affect your credit file.