What Is a Personal Loan?
A personal loan is an unsecured type of borrowing. When you take out a personal loan, the lender gives you a cash deposit of up to £25,000, which you pay back over a set period of time in a series of monthly instalments.
The lender charges interest on the money you borrowed, which is rolled into the monthly payments you make.
Personal loans can have very low-interest rates, and for people with a reasonable credit rating, this can be one of the cheapest ways to borrow.
How Much Can You Borrow With a Personal Loan?
How much a lender is willing to loan you depends on their assessment of how much you can afford to repay.
Most banks are willing to lend up to £25,000 with a personal loan, and some may go even higher. However, not everyone is eligible to borrow that much money from their bank.
This decision is shaped by two main factors: income and credit history. Your credit history does not strictly influence how much you can borrow, but if it’s bad, then a bank could decide not to lend to you at all.
Once a lender is willing to consider you for a personal loan, the most important factor is your income, as responsible lenders will not agree to loan you money which you cannot afford to repay.
Even if you have a perfect credit score, you still need to be able to prove your income is high enough to make repayments on the amount you borrow.
As part of these checks, the lender will make an estimate of your ‘disposable income’, which is the money left after essential expenses have been paid for, such as rent or childcare.
Increase the Amount You Can Borrow
You may be able to increase the amount you can borrow by making smaller monthly payments over a longer period of time. However, the longer you borrow for, the more you will end up paying back in interest.
There is an important question to ask yourself, too: how much can I afford to borrow? Although most lenders are thorough and scrupulous in their affordability assessments, none of them knows the reality of your financial life as well as you.
Although it may be tempting to take the maximum amount offered to you by a lender, borrowing more than you can afford could lead to financial difficulties further down the line including late repayments or even defaulting on the loan.
Personal loans can last for several years, during which time it is possible that your circumstances will change.
UK Towns With the Highest Personal Loan Debt per Person
|Town||Value of Loan|
|Slough, Warrington, Crew||£733|
How Much Does It Cost?
Your credit rating will play a major role in determining how much it costs you to take out a personal loan, as the lender will use it to decide how much interest to charge you.
For people with good credit, a personal loan can be a seriously cheap way to borrow money. Lenders often advertise these low APR rates to people considering a loan, but in reality, this can change according to the borrower’s credit rating.
Without an excellent credit rating, you could face an interest rate several times the rate advertised as an example by the lender.
The cost of personal loans is also affected by how much you borrow. Counter-intuitively, it can sometimes cost less to borrow more.
Lenders set a series of borrowing thresholds, above which interest rates decrease slightly. Thresholds are set at £2000, £3000, £5000 and £7500.
If you are planning to borrow an amount slightly less than one of these thresholds, you could actually end up saving money by borrowing more, because you’ll pay less in interest.
Can I Top Up My Loan After I’ve Taken It Out?
Many lenders offer facilities that allow you to ‘top-up’ an existing loan you have. When you apply to borrow more money- even from the same lender- your credit and income will be considered as though you were making a new application.
In many cases, ‘top-ups’ are, in fact, brand new loan applications. When you apply for more credit, the lender will close the old loan account and create a new one which covers your old outstanding the balance plus the extra amount you requested.
This has some important implications. By paying off your old loan early, you could be charged early repayment fees. As well as this, the lender will run a fresh credit check before opening the new account, so if your circumstances have changed there is a chance you could be rejected for the loan extension.
The terms and conditions on your new loan may also be different, meaning that the interest rate and monthly instalments could both change.
How Can Flexy Loans Help?
Here at Flexy Loans, we have partnered with some of the UK’s leading Lenders.
They have already helped thousands of people get loans already, and they can do the same for you.
Choosing a loan broker like us (we don’t charge any fees) means our application process matches you with the best loan available to you. All lenders we recommend are regulated by the FCA, which gives you an additional layer of protection.
To apply and see what loan is available to you, click on the below and answer the questions