What are personal loans?

A personal loan is a fixed amount of money you borrow from a lender. When you take out a personal loan, you agree both on the length of the term and the interest rate – both affect how much you pay back in total and the cost of your monthly repayments.

At Asda Money, we work with a carefully selected panel of trusted lenders that offer loans from £1,000 to £25,000 across one to seven years.

What can a personal loan be used for?

It’s up to you what you use your personal loan for. You may want to borrow money to pay for some or all of your wedding costs. You could be looking to buy a new car or put some money towards a car deposit. Many people take out personal loans to pay for home improvements or renovations.

Others choose a personal loan to consolidate existing debt. If you have existing debt in the form of credit cards, overdrafts or store credit, a debt consolidation loan* helps you combine them into one monthly outgoing. It may reduce the amount you pay each month and will be easier to manage with just one payment.

*Please remember that by consolidating existing borrowing, you may be extending the term of the debt and increasing the total amount you repay.

Pros and cons of personal loans

Thinking about whether a personal loan is right for you? There are pros and cons to consider.

Pros

• Access to money: Once you’re approved for a personal loan, you will likely get the money within a few days and with some lenders it can be the same day.
• Flexible repayments: Choose how long you need to pay back the loan, from one to seven years. Remember that the longer the term, the more you’ll pay back in interest.
• Boost your credit score: Meeting your monthly repayments every month can help improve your credit score.
• Lower interest rates: Personal loans often have lower interest rates than credit cards.
• Predictable fixed payments: Once you borrow the money, you’ll know exactly how much you need to pay back each month.

Cons

• Borrow once: With a loan, you borrow the money once. You can’t borrow again on the same loan after this. It is not an overdraft facility.

Check your eligibility for a loan and use our helpful loan calculator to help understand the potential cost of a loan.

What is a credit card?

With a credit card, you borrow money from a lender by paying for items on your card. Each time you spend it adds money to the balance which must be paid back.

Each month, you make a payment towards the balance on your card and can pay it back in full or in part. If you choose to pay in part, there’s a minimum that you must pay off each month. If you don’t pay it off in full each month, you’ll pay interest.

Often, you’ll use a credit card if you need to make a smaller purchase than a loan. You can spread the cost of new electrical items or a flight for example. It’s a good thing to have in your back pocket in case of an emergency too, if you need access to money quickly.

Pros and cons of credit cards

Before applying for and spending on your credit card, consider the advantages and disadvantages.

Pros:

• Interest: You only pay interest when you use the card and don’t pay off the balance in full.
• Purchase protection: Credit cards provide extra purchase protection, meaning you can claim back from the card provider if the goods were faulty or the company you bought from goes bust. The latter is ideal when paying for flights or a holiday.
• Cashback and rewards: Many providers offer cashback and rewards for using your credit card.

Cons:

• The potential for increased debt: With a credit card where you can make multiple payments, it’s easy to spend more than you can afford. And if you only pay off the minimum each month, it can result in increasing debt.
• Your financial history: Borrowing too much credit can concern lenders which can impact your ability to borrow money in the future – for a mortgage for example.
• Negative effects on your credit score: Missing payments can damage your credit score.

Do personal loans improve my credit score?

When you first take out a personal loan, your credit score might take a small hit as the increased debt from the loan shows up on your credit report.

But once you start regularly meeting your monthly payments and paying the loan off, it can improve your credit score. This is because you’re showing responsible borrowing – this in turn indicates to lenders that they can trust you to borrow money and pay it back.

If you’ve had money problems in the past and have poor credit, you may be able to borrow money with a bad credit loan. Once approved – if you meet your monthly payments – it should help boost your credit score.

When is a loan more suitable than a credit card?

A loan is often a more suitable option in the following scenarios:

• You need to borrow a larger amount that you would like to pay off over a few years: This is a better option than a credit card for home improvements or a wedding for example.
• You want to consolidate debt: Not only does a personal loan help bring existing debts into one easy to manage monthly payment, but you’ll likely pay less interest with a personal loan too.
• You want structured regular payments: With a loan, once you borrow the money, you’ll know exactly how much you need to pay off each month.
• You want to lock in your interest rate for the term of the loan: Once you borrow the money, your interest rate will be fixed for the term of the loan.

How Asda Money can help

At Asda Money, we work with a panel of carefully selected and trusted lenders, that could provide you with a personal loan that matches your borrowing needs.

We search our lender panel and list a range of different offers that meet your specific requirements. One simple eligibility check, and you’ll see options from the most suitable lenders within our extensive marketplace.  Then you can compare and find the right one for you before going on to complete a full application.

We can also help you understand how to better manage your finances with our Financial Support.