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What is a Personal Loan?
How do personal loans work?
When you take out a personal loan, you borrow a set amount of money from a lender. Usually at a fixed rate of interest – though this can vary from lender to lender. You then pay back the amount you borrowed plus the interest through monthly repayments.
Personal loans are a type of unsecured loan that means there’s no collateral linked to the money you borrow. This differs from secured loans, which are secured against your assets, such as your home.
You can take out a personal loan to help break up larger purchases into smaller monthly instalments. You can take out a personal loan to help break up larger purchases into smaller monthly payments. Such as covering the costs of a kitchen renovation.
What are the main types of personal loan?
There are two main types of personal loans:
- Fixed rate loans - where the interest rate stays the same for the length of the repayment term. This can be a good option for those looking to budget.
- Variable rate loans - where your interest rate can change from month to month. This means that your repayments can go up or down in line with the base rate.
At Lloyds Bank, we only offer fixed rate loans. You can pick how long your term is, from 1 year up to 7.
Just bear in mind, the longer the loan term, the more interest you could end up paying overall.
What can you use a personal loan for?
You can use a personal loans for almost anything. You might want to use a loan for:
- Home improvements - including renovations and repairs.
- Moving house - to cover any moving expenses.
- Weddings - from venue hire to catering costs.
- Consolidating debts - such as moving existing credit card debts into one place.
- Holidays - so you don’t have to pay all at once.
- Buying a car - instead of using Personal Contract Purchase (PCP) or Hire Purchase (HP).
What can't you use a personal loan for?
There are some exceptions, which you can’t use a personal loan for. These include:
- Gambling.
- Investing or purchasing shares.
- Business expenses.
- Any form of illegal activity.
- House deposits.
- Leasing land or property.
- Timeshares or holiday clubs.
Things to consider before applying for a personal loan
Before you apply, it may help to weigh up the pros and cons of a loan. Look at what you can expect from a personal loan below:
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Is a personal loan right for me?
A personal loan might not be right for everyone. Before taking out a loan, you should consider the following:
- What do you need the loan for? If it’s to cover a large purchase or upfront cost, then a loan could help make the expense more manageable with monthly repayments.
- Can you afford the repayments? Not just for now, but for the whole duration of the loan term. Would you be able to afford the repayments if your circumstances change?
- Do you have any existing debts? A personal loan can help you manage and keep track of debts by combining them into one monthly repayment.
- Have you made any other loan applications before? Too many loan applications in a short period of time may have an affect on your credit score.
If you think a loan is right for you, you can get a personalised quote with Lloyds Bank, which won’t affect your credit score.
The likelihood of being accepted for a personal loan can vary from person to person. Existing debts and previous loan applications can impact your application.
How to get a personal loan
Follow these three steps to apply for a personal loan with Lloyds Bank:
- Check that you’re eligible. You’ll need to be over 18 years old and a UK resident to apply for a personal loan. You’ll also need to have held a Lloyds Bank current account for at least one month.
- Get a quote before you apply. Log in and get a quote to find out how much you can borrow and what the monthly loan repayments might be. This will usually involve a soft credit check, which doesn’t affect your credit score.
- Apply the best way for you. If you’re happy with your quote, you can complete your personal loan application online, over the phone on 0330 123 3890 or in branch. Find your nearest branch.
Let’s look at the details
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When you apply for a personal loan with a fixed rate, there are usually no fees if you make your regular repayments on time. You could face fees if you make a late repayment or want to pay off the remaining loan balance early.
If you do want to pay the entire loan early, we'll charge up to 58 days' interest.
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Yes, you may be able to pay off a personal loan before the end of your agreed term. But you may have to pay an early repayment charge. This varies from lender to lender.
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It depends on the lender. Some lenders may let you get a personal loan with a low credit score, but you may face a higher interest rate due to the borrowing risk.
If you’re concerned about your credit score and whether you’ll be approved, you can speak to one of our advisors about your options.
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