Personal 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.

Check your lender is approved by the Financial Conduct Authority (FCA)

It could be a scam if you’re asked by a lender to pay a fee before you’re offered a loan. 

It might also be a scam if you’re asked to pay the fee quickly or in an unusual way - like with vouchers or with a money transfer.

You should always check if your lender is approved by the FCA before you take out a loan. If they’re approved, they’ll be on the Financial Services Register.

You can check your lender is on the Financial Services Register on the FCA website.

You might be asked by a credit broker to pay a fee before they help find you a loan. There are rules they must follow, and you should also always check they’re approved by the FCA.

You can check your rights when you use a credit broker.

How personal loans work

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.

Secured loans

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.

Choosing a personal loan

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.

If you’re struggling to repay a loan

You might be able to get your payments reduced or paused. Contact your lender - they should work with you to stop your debts from getting worse. 

Your lender might agree to:

• reduce or stop charging interest on your arrears 

• be flexible with the amount you have to pay back and how long you have to pay it

• allow you to pay a small amount or nothing for a fixed amount of time

• help you make a payment plan

Your lender should give you time to consider your options and get help with your debts. 

They should pause your account if you’re waiting for your circumstances to get better. For example, you might be waiting for your first payment of wages or benefits.

If your lender pauses your account, it’s a good idea to use this time to get debt advice. Talk to an adviser if you’re not sure how to repay your loan.

Your lender also has to follow rules to make sure you’re treated fairly. If they don’t follow the rules, you can complain. Check if your lender has followed the rules and how you can complain.

If your lender is offering you a new payment plan

You should think carefully about whether you can afford the monthly payments. Work out your budget to check if the payments are affordable for you. 

Further help and information

Money Helper

The Money Helper website has lots of useful information about borrowing and managing your money.

Moneysavingexpert

www.moneysavingexpert.com

Which?

www.which.co.uk