Getting a personal loan: reasons and benefits explained
What is a personal loan?
A personal loan is money you can borrow to cover big-ticket purchases, major life events, emergency expenses, debt management and more. You can typically borrow up to £25,000, and you’ll pay back what you owe (with interest) over an agreed timeframe.
A personal loan is a form of debt, so you should always weigh up the pros and cons before applying for one.
Pros of personal loans
- Quick, flexible way to get money
- Lower interest rates and higher borrowing limits than credit cards
- Not tied to any assets, such as your home
Cons of personal loans
- Taking on new debt could leave your finances stretched
- Excellent credit score needed to benefit from the best interest rates
- Penalties can apply if you fail to make your repayments on time
Reasons to get a personal loan
A personal loan can be one of the best ways to pay for something you can't afford upfront. It can be used for just about anything, and comes in many guises, such as a wedding loan or car loan. Here are a few of the most common reasons you might apply for a personal loan:
- Home improvements – if you’re planning a new bathroom or kitchen, or building an extension, home improvement loans can give you the money you need to upgrade your property and potentially add value to your home.
- Debt consolidation – if you have multiple loans and credit cards, grouping them into a single debt can make it easier to manage your money. Ultimately, debt consolidation loans can improve your credit score, but think very carefully before taking on new debt.
- Paying for a wedding – the average cost of a wedding is more than £20,000. If you don’t have that kind of spare cash lying around, a wedding loan could give you the day of your dreams. Learn more about wedding saving tips.
- Holiday expenses – from a luxury beach holiday to a round-the-world cruise, a personal loan can help you fund the trip of a lifetime.
- Financing a car – if you’re looking for a new set of wheels, car loans can help you get a better model than you could otherwise afford. Thinking about buying a car? Our car buying guide can help.
- Paying for an emergency – car or boiler broken down again? Get it fixed by taking out a personal loan.
- Funding education – while a student loan is the best option for financing higher education, you may be able to get a personal loan to help cover living expenses or extra tuition costs.
Where not to get a personal loan
While personal loans are a convenient way to pay for large or unexpected expenses, there are some instances when they might not be the best option.
- You have a low credit score – having a poor credit score doesn’t mean you can’t get a loan, but you’ll likely be charged a high rate of interest. It might be better to try improving your score before applying for a loan.
- Your budget is already stretched – taking on a loan is a big decision and you need to be confident you can afford the monthly repayments. If you’re on a tight budget, a personal loan might not be a good idea. Go to our financial support page for more advice.
- Other financing options may be more suitable – look at alternatives to personal loans before applying. Depending on what you need the money for, you might be better off with a different product, for example a 0% interest credit card.
- The expense is unnecessary – ideally, a personal loan should only be used to cover immediate needs and objectives to avoid putting your long-term financial future at risk.
Interested in applying for a personal loan? Try our personal loans quote tool to get an idea of how much your repayments could be.