What to Consider Before Applying for a Personal Loan in the UK
By Brendan Coyle, 5 June 2025.
A personal loan can help you cover large expenses—like a car, home improvements, or consolidating debt—but it’s important to make sure it’s the right option for you. We look at 10 steps to consider before taking the plunge and applying for a personal loan.
1. Why do you want a loan?
Before applying for a loan think about the purpose of getting a loan and if you really need a loan at all. Good reasons to get a loan may include:
- Consolidating your debts into one monthly payment
- Paying for doing up your house - adding value to a property
- Important one-off costs (e.g. weddings or emergency expenses)
Avoid taking out loans for things like day-to-day spending or holidays if you can help it.
2. How much do you need?
Only borrow what you actually require —not more. The more you borrow, the more you’ll repay in interest.
Lenders typically offer personal loans from £1,000 to £25,000, sometimes up to £50,000.
3. Can you afford a loan?
Check your budget to make sure you can afford the repayments every month. Use an online loan calculator to see:
- Monthly repayment amounts
- Total amount repayable over the term
- Interest paid in total
Beware: If you miss payments this could adversely impact your credit rating and result in extra charges from the lender like 'missed payment charges'
4. Check the interest rate (APR)
Make sure you check the APR (Annual Percentage Rate), this includes both interest and any fees and can help you compare loans easily.
Beware: The advertised APR might not be what you're offered—it depends on your credit score and personal circumstances.
5. How long is the loan for?
Loans typically last from between 1 t-7 years. The longer the loan the lower the monthly payments but more interest paid overall. A shorter term loan costs more per month but less in total interest.
6. Check your credit score
Lenders use your credit score to decide whether to give you a loan in the first place and to decide what rate to offer. Check your score with:
- Experian
- Equifax
- TransUnion
- ClearScore or Credit Karma
A better score can potentially mean better interest rates.
Top Tip: Many lenders offer a “soft search” to check your eligibility before you apply. This won't affect your credit score and lets you see if you're likely to be accepted.
8. Check for fees/charges/penalties
Things to keep in mind are the following:
- Arrangement fees (some lenders charge to set up the loan)
- Early repayment charges (if you want to repay early)
- Late payment penalties
Beware: Always read the small print.
9. Compare Loan Companies
Try and resist the urge to just go with your high street bank.Instead, compare loan options from:
- High street banks (e.g. NatWest, Lloyds, Barclays)
- Online lenders (e.g. Zopa, Ratesetter)
- Credit unions
- Price comparison websites (e.g. MoneySuperMarket, Compare the Market
- Check APRs, repayment flexibility, and customer reviews.
10. Is a loan the best product?
Before taking a personal loan, consider if there are any alternatives. These could include:
- 0% interest credit cards (for smaller borrowing over the short term)
- Borrowing from family or friends (if appropriate)
- Budgeting or saving instead
The information provided is for general informational purposes only and does not constitute financial, investment, or legal advice. I am not a financial advisor, and you should not rely on this content as a substitute for professional guidance. Always consult a qualified financial professional before making any financial decisions.