Compare personal loans

Try to work out how much you can afford to borrow before applying for a loan. This way you can give yourself the best chance of being accepted and ensure you don’t take on a loan that you can’t afford. Look at MoneySuperMarket’s loan calculator for guidance.

Always think carefully before you take out a loan. Is the cost worth what you’re taking it out for? For example, don’t take a loan out for everyday purchases, as a credit card is more suitable.

Interest-free periods can be useful when you’re borrowing, but be aware how long they last. Once the interest-free period ends you may be moved on to a high rate, so try and pay off as much of your debt as you can beforehand.

Always avoid loan sharks, who are illegal, unregulated and charge massive interest rates. If you aren’t able to repay them, you’ll be pressured into borrowing even more, leading to a spiral of debt.

Payday loans may be legitimate, but they come with interest rates which can reach over 1,000%. They’re never worth it.

Every loan application you make leaves a mark on your credit report. Too many gives lenders the impression that you are desperate to take out a loan, which implies that you’re struggling to manage your finances, making lenders more reluctant to let you borrow from them.

Rather than making lots of applications, you are better off running a soft check on your credit score to see what kinds of loans you’ll be eligible for. MoneySuperMarket’s free Credit Monitor tool is a useful way to check your credit rating.

It’s important to understand the pros and cons of the loans on offer to you, as well as how to secure the best rates. If not, you could end up with a poor deal – and costly credit can send you into a downward debt spiral.

Unsecured personal loans are a useful way to pay for larger purchases you might otherwise struggle to afford. Most lenders won't stipulate what you spend the money on, but the majority of people take out personal loans to pay for the following:

• Car loans: Many people use loans to pay for new or second-hand cars. Most dealerships offer finance options of their own, however, so it's wise to compare the terms of your options
• Home improvements: Loans for DIY, extensions and conservatories are also popular options; home improvements are often expensive, and a loan helps you spread the cost of necessary work
• Holiday loans: Sometimes you just need a break, and a small loan to pay for a nicer holiday than you might otherwise be able to afford can represent a treat
• Wedding loans: If you want the best for your special day, loans are one way to
• Debt consolidation: If you have run up other high-interest debts, a personal loan can help manage the load

You can typically borrow between £1,000 and £25,000 with an unsecured loan. The interest rate is usually fixed and you pay back the debt over one, three or five years.

With a secured loan, the lender will insist on some sort of security against the money you borrow, often a house or car. If you default on the payments, the bank or building society can then sell the asset to clear the debt.

You can usually borrow large amounts with a secured loan, and at a lower rate of interest. Plus, you can pay back the debt over a long time period, perhaps 10 or 15 years.

However, secured loans are more risky than unsecured loans because you could lose your collateral if you cannot clear the debt.

The interest rates on personal loans depend partly on the loan amount and term, but lenders also assess your credit history.

The lowest rates are reserved for the best customers – borrowers with a spotless credit record. If you are considered more likely to default on the loan due to poor credit history, you will be charged a higher rate of interest or your application will be turned down.

In other words, there is no guarantee that you will qualify for the advertised rates. Lenders are allowed to boast of low representative rates if those rates are charged to 51% of successful applicants, which means almost half could be charged a higher rate.

You can pay off your debt before the end of the loan term, but watch out for early repayment fees. Many lenders have a penalty for early repayment, which could wipe out any potential interest savings. Some lenders also charge arrangement fees for personal loans, which you should factor into your cost calculations.

An unsecured loan isn’t tied to any collateral, so you’ll need at decent credit score to qualify. There is also often a maximum amount you’ll be allowed to borrow.

A secured loan is tied to an asset of yours as security. For example a mortgage is a type of secured loan, and the asset is the house you take the mortgage out on – when you repay the loan the house is yours, but if you don’t repay then the lender could seize your home.

Taking out a personal loan is as simple as approaching a lender and submitting a few details. They’ll perform background checks on your credit history and let you know if you’re eligible.

The real trick is finding the right provider, which is where comparison sites like MoneySuperMarket come in. We will run checks across dozens of personal loan providers, so you can find the best loan for you.

Personal loans are useful if you need a quick injection of a few thousand pounds in order to make a substantial purchase you might otherwise be unable to afford.

You have to be able to prove to the lender that you'll be able to meet your repayment responsibilities, however, so unsecured personal loans are not suitable for people with bad credit. If you're not sure you can make your monthly repayments, a personal loan may not be for you.

An interest-free or low-interest credit card is a decent alternative to a personal loan, especially if you only want to borrow £1,000 or less.

People with good credit ratings can often find credit cards offering up to three years interest free, so if you always meet your minimum monthly repayments, a credit card will be a cheaper way to borrow money.

If you need several thousand pounds, a personal loan is a better – if more expensive – bet.

The amount you’ll be eligible to borrow will depend on your personal circumstances and credit history, but it’s usually only up to £25,000.

The length of your loan can vary on the type you take out and the provider you choose, but it could be anywhere between one and 10 years. Taking out a loan for a longer period of time may reduce your monthly payments, but you end up paying more in interest payments.

You’ll need a good credit history to be accepted for loans with decent terms, but some providers offer loans designed for people with poor or no credit. For example, you can get guarantor loans, in which someone else commits to make your repayments if you can’t.

A soft search or soft application is a way of finding out where you stand in terms of getting a loan without leaving a mark on your credit report. It’s a way to find if you’re eligible for a loan without harming your chances of being accepted.

Missing repayments can mean a fine from your lender, and it could also end any low- or zero-interest incentives you have. You may also see your interest rate increase.

APR, or your Annual Percentage Rate, is the interest rate at which you pay back money you’ve borrowed. It takes into account the actual interest rate you pay, plus any other fees or charges involved in the deal, to give you a more complete picture of what you loan will cost.

When you see a rate advertised as the representative APR, this means the lender is required to offer this rate to at least 51% of applicants – however it doesn’t mean you’re guaranteed to receive this interest rate yourself.

If you’re struggling with your finances and you think you might not be able to make your repayments, you should call your lender as soon as possible – they may be able to help you work out an easier repayment plan or a repayment holiday. Not letting your bank know could mean you’ll be penalised for missing any payments.

MoneySuperMarket gives you lots of clever ways to save a lot, by doing very little.

• Take control of your credit score by checking and improving it for free with Credit Monitor
• Never overpay again with Energy Monitor, our energy monitoring service
• Over 50 ways to Get Money Calm

So how do we make our money? In a nutshell, when you use us to buy a product, we get a reward from the company you’re buying from.

But you might have other questions. Do we provide access to all the companies operating in a given market? Do we have commercial relationships or ownership ties that might make us feature one company above another?

We commit to providing you with clear and informative answers on all points such as this, so we have gathered the relevant information on this page.