A Guide to Personal Loans

Personal loans, otherwise known as unsecured loans, are taken out so that an individual can borrow a fixed amount of money from a lender, usually a bank or building society. A significant feature of a personal loan is that the individual must agree to pay back the amount over a set period of time in the form of fixed monthly repayments.


Types of Personal Loans

Most personal loan providers will charge interest as a lending fee, meaning that you will be paying back more money than the amount you borrow, spreading the cost over several months of years. Crucially, anyone who lives permanently in the UK, is aged 21 or over, has a bank or building society account, and a regular gross income of at least £6,000, is eligible to apply for a loan. With a range of high street lenders to choose from, and with rates that start at 3.0% APR on loans from £7,500 to £15,000, borrowing is becoming increasingly accessible, yet something that it pays to be cautious about. Moreover, there are several types of personal loans, with some offering more favourite terms for borrowers than others.


Payday Loans

For instance, payday, or ‘cash’ loans are often less favourable due to their fees, and are designed to be short-term, providing amounts between £100-£1000 in order to help individuals manage until their next payday. Accordingly, payday loans are usually used to meet emergency costs, such as for boiler repairs or emergency transport. Furthermore, when applying for a payday loan, borrowers must agree that the loan provider can take payment their your card (usually upon their next salary payment), with the cost of aforementioned fees included. For example, a typical payday loan of £100 charges a fee of around £25, meaning you will pay back £125 when your salary arrives. However, many payday lenders now give the option to pay back your loan over a longer period of time, often over three months. Although this longer repayment period can help with budgeting, it is also the case that the longer you borrow for, the more interest you will have to pay (or the greater the fee). Crucially, there are price caps that prevent borrowers from having to pay back more than twice the amount they borrowed with the initial payday loan.


Debt Consolidation

Debt consolidation loans allow borrowers to combine their debts in a single monthly repayment. For instance, if you have split your borrowing through balances on store and credits cards, between overdrafts and other loans, then it may be both more simple and prudent to combine your repayments in a single outgoing set at a fixed rate.


Guarantor Loans

A guarantor loan is an unsecured loan where a second person is responsible for paying off the debut should the named borrower be unable to make the repayment. In particular, a guarantor loan is an option for those with little credit history or a poor credit rating and may therefore struggle to qualify for an alternate type of loan. However, the interest rate tends to be much higher than on personal loans, and it must be the case that the guarantor is not financially linked to the borrower. Typically, you can borrow more with a guarantor than with other bad credit loan options. Moreover, it is worth noting that the annual percentage rate (APR) of interest will vary from lender to lender, the amount you intend to borrow, and the length of the repayment period.


Logbook (Vehicle) Loans

A logbook loan is simply a bank or building society loan that has been secured against any vehicle, such as your car. Therefore, a logbook loan is an easy way to release cash from a vehicle, without needing a formal credit check. To qualify for the loan, you owner will be required to produce the logbook (V5) to prove that you are the registered owner of the vehicle, before agreeing to the terms of your repayments.


Government Loans


Business Start Up Loans

The first of the government loans discussed on this page are business start-up loans, which unlike a typical business loan, is an unsecured loan. Eligible borrowers are able to borrow from £500 to £25,000 to start or grow a business. Moreover, as per the terms of a government business start-up loan, you’ll receive free support and guidance when helping to write your business plan, and successful applicants will receive up to 12 months of free mentoring. However, apply for a business start-up loan all, you must have (or plan to start) a UK-based business that’s been fully trading for less than 2 years, and be willing to repay the loan over a period of 1 to 5 years. Each of the start up loans will charged a fixed interest rate of 6% per year, and comes with no application or early repayment fee.


Budgeting Loans

If you receive certain benefits (such as Universal Credit) and require a loan, you can also apply for an interest-free budgeting loan from the government’s Social Fund. Budgeting loans are designed to help pay for essentials and unexpected expenses if you’re on a low income. For instance, successful applications are used to pay for furniture and household equipment, clothing, rent payments, or removal expenses if there has been a problem with your housing situation. Crucially, a budgeting loan is much cheaper than paying the fees or interest charges when borrowing from the payday lenders as outlined above.