Saving cash can be tough in today’s economy. The cost of living is rising whilst salaries are stagnating. Even with meticulous budgeting, you may struggle to save more than a few hundred pounds a month at best.

But what if your kitchen is in dire need of a refurb, your car keeps breaking down or your credit card debt is becoming hard to manage. You need cash fast.

This is where personal loans come in. They allow you to borrow your required amount and spread the repayments into affordable monthly chunks.

The personal loan market looks a lot different to how it did 20 years ago, the influence of technology has meant that there are now more types of loans than ever before, larger loan amounts and longer repayment terms.

This means if you haven’t borrowed for a while, the current market can be a confusing place to be. Therefore, we’ve created this 5-minute guide to personal loans; to improve your understanding of the product and help you decide which one is right for you.

What are personal loans?

Personal loans (sometimes referred to as unsecured loans) do not require the security of an asset such as your property. They are typically available from banks, high-street lenders, supermarkets and online lenders. Historically only those with a good credit history would be approved, however there are now companies who specialise in lending to those with a poor credit rating too.

How much can I borrow?

Some payday or instalment lenders will lend as little as £100, typically though banks and supermarkets have a minimum loan amount of £1000. Lending usually goes up to around £15,000 however many banks will offer as much as £25,000, with Tesco now offering a massive £35,000 personal loan.

What are the repayment terms?

The repayment terms will depend on the amount you’ve borrowed. With payday loans, you pay the balance in full on your payday. Smaller instalment lenders will typically accept weekly or monthly repayments up to 1 year whereas larger personal loans are usually repaid in fixed monthly repayments.

Smaller personal loans (£1,000 – £3,000) will be repayable over 1-3 years, medium loan amounts (£3,000 – £7,500) will be repayable over 1-5 years and larger loan amounts of £10,000+ will typically be repayable over 3-8 years, depending on the lender you choose.

Do I need good credit?

Most lower rate loans from banks, supermarkets and high-street lenders will require you to have a good credit history, however many lenders can help those with some adverse credit. Guarantor loans for example allow you to borrow up to £10,000 (even with poor credit) using the help of a homeowner guarantor to act as back-up. Some instalment loan providers lend to those with poor credit history however the maximum amount is unlikely to exceed £1,000.

What are the interest rates?

Personal loan rates have recently hit their lowest rate in history with Sainsbury’s offering their mid-amount loans at 2.8% APR. These rates will be reserved for those with a perfect credit history and no past repayment issues. Someone with a good credit history can expect to pay around 5% APR, whilst those with past repayment issues may have to pay significantly more. Guarantor loans start at around 25% APR, whilst some instalment lenders may charge 100%+ APR for their small loans.

What are the risks of leaving them unpaid?

Unlike secured loans, you do not run the risk of losing your home or other assets if the loan goes unpaid. However, it’s likely that you’ll be charged a late payment fee as well as interest charges on the unpaid balance. If you fail to pay for long periods then a lender may choose to take litigation action against you, this could include attachment of earnings, a charging order on your property or a CCJ. All the above will severely impact your chances of getting finance in the future.


With rates at their lowest point in history, now is a great time to get a personal loan. Remember, only borrow the amount you need, and budget carefully for the repayments. Borrowing too little or too much money or failing to properly budget for the repayments may leave you in a sticky financial situation further down the line.