By Clare Yates
4 min read
It’s a straightforward way to borrow a fixed amount and pay it back over time – usually in monthly instalments. No need to put your house or car on the line either, because personal loans are typically ‘unsecured’.
Personal loans can range from a few hundred pounds to many thousands – and you can use the money for all sorts of things (we’ll come to that). The important bit is that you should always borrow sensibly and only take on what you know you can afford to repay.
How personal loans work
So, here’s how it works: you borrow a set amount, agree how long you’ll take to pay it back, and stick to monthly repayments. Everything’s clear from the start – how much you’ll pay each month, how much interest you’ll be charged, and when the loan will be fully paid off. That makes it easier to budget, and easier to plan.
Repayments are usually taken monthly by Direct Debit. You’ll pay the same amount each month, which makes it easier to keep track and avoid surprises. Interest is baked into those monthly payments, and you’ll know upfront how much the loan will cost you overall.
Most lenders give you the option to make extra payments or clear the loan early. That can save you a bit in interest – but check first to see if there are any early repayment charges.
And if you miss a payment? You could be charged extra and it might affect your credit score, so it’s best to set a reminder or let your bank do the remembering with an automatic payment.
What can I use a personal loan for?
This is where personal loans really come into their own. You can use one for lots of different things, as long as it’s something the lender’s happy to lend for.
One of the most common uses? Home improvements. Whether you’re fixing a leaky roof, revamping your kitchen, or finally building that garden office, a personal loan can help spread the cost.
They’re also handy for other one-off purchases, like a new car or a fancy holiday. Want to finally take the whole family to Florida? A personal loan could help make that dream a reality – without wiping out your savings.
Here are a few common uses:
Home improvements: From extensions to new bathrooms, personal loans can help you spread the cost over time.
Energy-efficient upgrades: Think new windows, insulation or even solar panels to cut future bills.
Car purchases: Whether it’s your first car or a reliable upgrade, a loan can make it more affordable.
Weddings: Say “I do” to your dream day without blowing your savings.
Debt consolidation: Combine credit cards or other loans into one manageable monthly repayment.
Education or training: Need to cover course fees or materials? A personal loan could help fund a fresh start.
Big holidays: Once-in-a-lifetime trips don’t have to wait a lifetime.
Emergency expenses: Cover unexpected costs like a boiler breakdown or a hefty vet bill without panic.
That said, every lender’s different, so it’s always worth checking their rules before applying. But the bottom line? Personal loans are flexible, and you’ve got options.
What can’t I use a personal loan for?
Personal loans are flexible, but there are limits. Lenders have clear rules about what you can’t use the money for – and ignoring them could land you in hot water or breach your agreement.
Most of it’s common sense, but here are the usual red flags:
Gambling: That includes betting, gaming or anything else that’s considered high risk.
Investments: You usually can’t use a loan to invest in stocks, shares or cryptocurrency.
Business reasons: Personal loans are for personal use – not to fund or support a business.
Buying land or property: Although technically possible, you can’t usually use a personal loan to buy or lease property, or to put down a deposit.
Timeshares or holiday clubs: These are often excluded due to the financial risks involved.
Anything illegal: Obvious, but worth saying – lenders won’t allow funds to be used for unlawful activity.
Always double check the lender’s terms if you’re unsure. Better safe than sorry.
Final thought? Personal loans can be a handy way to tick off your goals without draining your savings. The trick is using them wisely – with a clear purpose, a solid repayment plan, and a bit of research beforehand. Get that right, and you’ll be borrowing with confidence.
Wondering if a loan could be a good option for you right now? Read our handy guide “When is it a good idea or a bad idea to get a personal loan?”.