Personal Loans

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By Crispin Bateman

Updated on Thursday 5 December 2019

Personal loans, also known as unsecured loans, are mid-term loans usually designed to provide you with an injection of money for a specific need. While most personal loans are obtained through your usual bank, there are a variety of options available that should be looked at first to get the best rate.

With a multitude of providers, and a wealth of different products from each of those lenders, sifting through the amount of options available to you is time consuming and can be very complicated. Here's a guide to help you through the process.

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Reasons for a Personal Loan

Most providers are interested in the reasons for your personal loan, in order to be responsible lenders and not just hand out loans to those who cannot afford to repay them. The more usual reasons for a personal loan are:

Consolidation of existing debt

Perhaps the number one reason for an unsecured personal loan is to pay off a number of other outstanding debts and to have only the single monthly loan repayment to worry about. Not only does this make juggling monthly finances easier, it can also save substantial amounts of money, as it is possible to repay existing debts with high interest rates with a single loan at a lower and more reasonable rate.

Make sure that you can afford the repayments on any personal loan – never stretch yourself beyond your realistic means.

Large purchases

From cars to washing machines, with a sofa or laptop thrown in along the way – taking out a personal loan to be able to afford larger items is another legitimate situation.


A short term personal loan to help stretch to a more exciting holiday is a perfect reason to use the resources available to you. It needn’t be for a huge amount, and spreading the cost of your yearly adventure across the months is a great way to ease the financial pressure and ensure you have a better time while there.

Unexpected situations

Sometimes life just jumps on you with something you didn’t see happening. While the variety of insurance products is there to mitigate some of those things, no one can see the future! A quick personal loan can mean the difference between security and disaster.

Interest Rates

Although it’s tempting to simply agree to the first loan that is offered to you, it’s important to check out the details of the interest rate – after all, accepting a worse rate than you could have received is essentially giving money away to the lender for nothing!

Fixed vs. variable rates

Most personal loans will have a fixed rate of interest – meaning the rate will not change throughout the term and you can plan your repayments accordingly. Some, however, will have a variable rate that fluctuates along with national interest rates.

The potential advantage with a variable rate loan is that you will pay less interest over time than with a fixed rate, but unless you have a very solid understanding of national finances, you are probably best off with a fixed rate.

Do check whether or not the interest rate is fixed or variable in the terms of your loan contract before you sign.

Not always the rate advertised

Be cautious about jumping into a loan agreement based on the rate you first saw advertised. Lenders will adjust their rate based on your credit rating and other factors, so just because something is advertised as having an impressively low 3% APR, you may find that once your details are known, you are offered a far poorer rate – maybe even as bad as 30% - ten times the interest!

An advertised rate will be given to at least half the people applying for that loan, but that means the other half are offered a far less impressive rate. Make sure you know where you stand in that equation and that you are happy with the actual rate of your loan before you agree to it.



By far the largest proportion of lenders, banks represent the traditional route to personal loans.

If you are in any way worried about your credit score, your own bank is usually the best place to start – with an accurate record and understanding about your finances, they are likely to ask for less paperwork and are able to make a decision quicker than any other institutions.

With a solid credit rating, however, you should remember that you don’t need to accept the terms of your own bank and can shop around with different banks to find the one that offers the best deal.

Credit Unions

If you are already a member of a credit union, you may be entitled to take out a personal loan with them. Working for their members, credit unions often offer better loan terms than banks.


An increasing part of the market, peer-to-peer loans remove the bank from the equation and are loans directly from interested investors to members of the public. Often, peer-to-peer loans can offer a superior rate of interest, but they are unlikely to give loans to people with poor credit ratings.

General Loan Advice

An unsecured personal loan can help you in many ways, giving you money when you need it, and being part of a strategy to improve your credit rating going forward, but you must remember to make monthly payments in full.

It is not advised to take out a personal loan if making the payments would be a considerable stretch on your finances.

Consider all of your options for loans before finalising a decision, and be sure to contact a financial advisor if you need some help.

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