What is a personal loan?

Thinking about making a big purchase or tidying up your finances? A personal loan could be the answer. It's a lump sum you borrow from a bank or other lender, and repay monthly over a set period, often between one and five years although a longer term may be possible. You know exactly what you're paying each month, which makes budgeting a breeze.

Most personal loans are unsecured, so you won't need to put up your home or car as collateral. They’re ideal for funding big expenses like home improvements, a new car, or consolidating existing debts.

Loan terms and interest rates vary, so it pays to shop around. Approval depends on factors like your credit score, income, and existing financial commitments. Lenders will also likely run a credit check, so anything you can do to improve your score could boost your chances of approval. Just remember to make sure you can comfortably afford the repayments before committing.

Are you eligible for a personal loan?

If you're considering a personal loan, it's essential to understand the eligibility criteria set by UK lenders. While requirements can vary, most banks and building societies have some common standards. Here's a breakdown of what lenders typically look for:

Age and residency: You’ll need to be at least 18 years old and a UK resident. Some lenders require you to be over 21.

Income requirements: You will need a regular source of income. The minimum amount varies between lenders.

Banking: You’ll typically need a UK bank account and be able to make monthly repayments by direct debit. Some banks when lending higher loan amounts will prefer or require you to have an existing current account with them.

Credit history: A good credit history is important. Some lenders may stipulate that you should have no adverse credit in the last few years including County Court Judgments, an Individual Voluntary Arrangement (IVA) or bankruptcy.

Be mindful of recent applications: Lenders may check if you've applied for or been declined credit recently. Too many applications in a short time can affect your chances.

Remember, each lender has its own criteria, so it's wise to check to ensure you meet their requirements before applying.

How do personal loans work?

Before you apply, it’s good to know how the process works so there are no surprises along the way. Here’s what to expect, from applying to paying it back.

Applying is usually quick and straightforward

You’ll be asked to share a few key details about your income and employment status. Lenders will use this, along with your credit score, to decide whether to offer you a loan and what kind of interest rate you might get.

If you're approved, things can move fast

The lender will confirm how much you’re borrowing, the interest rate and your monthly payments. Once you’re happy and sign the agreement, the money can potentially land in your account within a couple of days, sometimes in a few hours!

Repayments are simple and predictable

You’ll pay back a fixed amount each month over a set term, typically one to five years, although longer terms are available. Staying on top of payments keeps your credit score in good shape, and some lenders offer the option to pay off your loan early (though sometimes a small fee applies).

How much can I borrow with a personal loan?

Typical maximum personal loan levels range from £1,000 to around £30,000, though some lenders may offer you more than this - potentially up to £50,000 or more. How much you can borrow depends on your income, credit history, and how affordable the repayments will be for you. Lenders aim to ensure the loan fits comfortably within your monthly budget.

They’ll look at a few key things when deciding what to offer:

Your income

Primarily whether it's regular, stable and sufficient to cover the monthly loan repayments.

Stable employment helps

Being in a full-time, permanent role can boost your chances of approval. Working self-employed, part-time or in a temp role may make it harder to get accepted, but certainly doesn’t automatically rule out a loan.

Your credit score

The better it is, the higher your chances of being approved. You might even bag a better rate if you have a particularly solid credit report.

As with any borrowing, it’s smart to only borrow what you need, and to make sure you can manage the repayments comfortably throughout the loan term.

What are the pros and cons of a personal loan?

A personal loan can be a handy way to borrow a lump sum for big expenses, whether it’s home improvements, a new car, a holiday, wedding or consolidating debts. But like any borrowing, it’s worth weighing up the benefits and drawbacks before you dive in. Here’s a quick breakdown to help you decide if it’s the right fit for your finances.

Pros of a personal loan:

  • Fixed payments makes budgeting easier: You’ll know exactly what you’re repaying each month, so it’s easier to stay in control.

  • Lump-sum access: Great for one-off expenses like home improvements, car purchases or consolidating debt.

  • No need for collateral: Personal loans are typically unsecured, meaning you don’t need to put up your home or car as security.

  • Quick access to funds: Some lenders may transfer the money within a few days or even hours of approval.

  • Flexible repayment terms: You can choose how long you need to pay back the debt, with terms that tend to range from one to five years, although longer terms may be available.

  • Potential to improve credit score: Making timely repayments can help build or improve your credit history over time.

Cons of a personal loan:

  • Interest rates can vary: If your credit score isn’t great, you may not get the lowest rates available.

  • Early repayment fees: Want to pay it off early? You might face a charge for doing so. Check the terms of the loan before committing if early repayment is a priority for you.

  • Loan term: Whilst longer terms can reduce monthly payments, it can cost you more overall.

  • Hard to borrow with poor credit: If your credit score is low, or you’ve defaulted on other debts in the past, you might find it harder to be approved for an unsecured loan.

  • Penalties if you default: Missing repayments can negatively impact your credit file and may lead to legal action by lenders.

A personal loan can be a great solution when used wisely, but it’s important to borrow sensibly and stay on top of repayments.

Loan guides

Answering your questions about personal loans

Page updated on 15th October 2025, Reviewed by Richard Groom