This information tells you how personal loans work and where you can look to compare different loans.
A bank, building society or finance company can give you a personal loan whether or not you’re a customer. You can apply for a loan in person at a branch or by post, phone or online.
You normally borrow a fixed amount, repayable by set monthly instalments over an agreed period of time, called the term of the loan.
You’ll usually be charged a fixed rate of interest and sometimes extra fees, especially if the loan is secured. Some lenders give loans with a variable interest rate. This means that the interest rate may go up or down during the term of the loan. If the interest rate goes up, you will need to increase your payments to make sure you pay off the whole loan in time.
You’ll usually be asked to make the repayments by direct debit from your bank account. If you don’t make the payments on time, you may be charged a fee.
Paying the loan off early
You can normally pay off a personal loan at any time before the end of the term and you may be entitled to a refund of interest if you do. Ask the lender when you apply or look at the credit agreement. This is the document you signed when you took out the loan.
A personal loan can be secured or unsecured. A secured loan is like a mortgage. Normally your house is used as the security although it’s possible to use other assets such as an insurance policy.
The security offered may be at risk if you don’t keep up with repayments on a secured loan. With an unsecured loan, your house is not immediately at risk if you fall into arrears, although the lender can take court action to make you pay the money back.
For more information about secured loans, see Mortgages and secured loans.
There are lots of different loan providers so it's a good idea to shop around when choosing a loan. You can compare what different personal loan providers are offering on the Which? website at www.which.co.uk.
For more information about what to look for when comparing loans, see Getting the best credit deal.
For more information about different ways of borrowing money and getting credit, see Types of borrowing.
You may also find the following Adviceguide information helpful:
- Getting the best credit deal
- Credit cards
- Banks and building societies
- Help with budgeting
- Help with debt in England, Wales and Northern Ireland
- Help with debt in Scotland.
The Money Advice Service
The Money Advice Service is a free, independent service. Their website (www.moneyadviceservice.org.uk) has lots of useful information about borrowing and managing your money.
Go to their website for more information about: