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Is a personal loan right for me?

If you want to borrow money to fast-track your plans, whether that’s buying a car, making home improvements or spreading the cost of a purchase you couldn’t afford otherwise, then a personal loan could help to get things going. They’re also known as ‘unsecured loans’, because they’re not tied to another asset, such as your home.

With a personal loan you could borrow a fixed amount of money from a lender and make monthly payments over a pre-agreed period.

Because most things about a loan are fixed, it’s easier to budget and calculate the overall cost. Although you won’t have the ongoing flexibility a credit card can offer, you will have a definite date when your loan will be paid off, so consider what’s more important to you and which option might suit your credit needs best.

Of course, as with all types of credit, these services aren’t provided for free. When you’re doing your budgeting sums, factor in any interest you’ll pay over the term and any other charges which could apply.

What are the benefits of a personal loan?

You’ll find that personal loans are very structured, but that’s not necessarily a bad thing. With more open credit options like credit cards or overdrafts, the temptation is always there to spend more, potentially extending the time and interest costs of clearing your balance.

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Loan value

Borrow between £1,000 and £25,000.

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Loan term

Choose to repay over 1 to 7 years – just remember the longer the term, the more interest you’ll pay overall.

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Interest

Fixed for the full loan term, making it easier to budget.

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Repayments

You must set up a Direct Debit to cover your monthly payments.

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Additional payments

You can pay extra at any time to reduce your interest costs and loan term. You will only be charged if you make an early settlement for the whole loan amount (up to 58 days’ interest).

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Arrangement fee

There isn’t one, which is always a bonus.

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Fees and charges

If you miss a payment, you could be charged £25 and may be subject to further charges if you don’t catch up.

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Repayments holidays

You can apply to take up to 2 repayment holidays of one month in a rolling 12 month period, subject to approval. If you do this, it’s just important to know you’ll pay more interest overall and your original loan term will be extended.

Bear in mind the rates and loan amount you’re offered are subject to security and credit checks. These checks are completed when you submit a full loan application.

See an example of our personal loan agreement (PDF, 203KB)

A few things you should consider

  • You might be able to borrow more with a personal loan than you would with a credit card.
  • Look for loans with fixed interest rates (some lenders offer variable rates) which should make it easier to understand the costs.
  • If you have savings, you might be better off using them instead of taking out a loan which you’ll pay interest on, increasing your overall costs.
  • If you hope to repay what you borrow over a short period, a 0% credit card could work out cheaper overall. Again, make sure you do your sums.
  • Purchases made with a credit card benefit from additional protection, which you won’t get if you take out a loan and spend using a debit card or cash.
  • Your bank or building society might provide other borrowing options worth considering, such as overdrafts and secured homeowner loans.

First impressions might be that a 0% credit card would be a more suitable borrowing option, but consider the duration of the promotional rate. Very low interest is usually offered over a limited period, after which much higher standard interest rates apply. So a low standard loan rate could work out cheaper overall, depending how long you plan to borrow and repay your balance over.

Compare borrowing options from MBNA

How you could use a personal loan

How you use the money you borrow is pretty flexible, but we’ve listed some common uses and things to consider below:

Big events - a loan could help you cover the cost of exciting things, such as a wedding. Just resist the temptation to get carried away and spend more than you originally planned. You want to remember your big day for all the right reasons… not a big debt hangover. Find out more on wedding loans.

Cars - a loan could offer lower interest repayments than dealership financing options, so it’s a good idea to shop around. Find out more on car loans.

Home improvements - it might be worth speaking to a local estate agent to give you some tips on what changes would add the most value to your property. If you need to borrow to cover the costs, focus more on things you need, rather than things you could save up for and buy later without paying interest on top. Find out more on home improvement loans.

Larger purchases - again it’ll be cheaper in the long run if you save up and buy, rather than paying interest on a loan. If you can, wait until you can afford to buy without borrowing.

Unexpected bills - if your savings won’t stretch to a new boiler, expensive car repairs or something similar, a loan could help you to spread the cost. Just consider, if you only need a short term solution, another borrowing option, like a credit card, might work out cheaper overall.

Combining balances - if you’ve got higher interest credit balances elsewhere you could pay them off with the help of a loan, making your outgoings easier to manage and potentially saving you money on interest repayments. With a credit card there’s always the temptation to use it on an ongoing basis, so the fixed nature of a loan could also help you to focus on paying things off, as long as you don’t spend more on the cards you’ve just cleared of course. Find out more about debt consolidation loans.

Your responsibilities

The biggest commitment you'll have is to keep up with repayments for the full term of your loan, so make sure the monthly payments are affordable before you go ahead. Choosing a longer loan term will reduce your monthly payment amount, but bear in mind you’ll be charged more in interest overall.

You’ll need to set up a Direct Debit to cover your monthly payments. The amount due will be collected automatically from your nominated bank or building society account, so you just need to make sure there are sufficient funds available.

You can make additional payments at any time, reducing your interest costs and the loan term, with your debit card. Some lenders might charge you for paying extra, but on an MBNA loan you will only be charged if you make an early settlement for the whole loan amount (up to 58 days’ interest).

To make a payment with your debit card, please get in touch. The funds will be applied to your account on the working day it’s received.

More about managing your loan.

What are the risks?

  • If you miss a payment, you could be charged £25 and may be subject to further charges if you don’t catch up.
  • Failing to manage your loan carefully could affect your credit score, which might affect your ability to borrow credit in future.

Applying for an MBNA Personal loan

When you apply, your credit history will be checked with the credit reference agencies. Making repeated applications for credit within a short period of time could have a negative impact on your credit score, so consider your options carefully before you get started.

Apply now

You can apply if:

  • You’re aged 18 or over.
  • You’re a UK resident (excluding the Channel Islands and Isle of Man).
  • You’re not in full-time education.
  • You’re in paid employment or have a regular income.
  • You’ve not been declined for credit in the last month.
  • You don’t have a history of bad credit.

If you apply online:

  • It takes about 10 minutes.
  • A lending decision is made once security and credit checks are completed.
  • You’ll receive a personalised offer and an instant loan decision.
  • If you’re approved, you could have the money in your chosen account within 24 hours, however, some customers may require extra ID checks and it can take up to 5 working days to receive the funds.

How can I qualify for a personal loan?

To give yourself the best chance, take the time to:

  • Make sure you meet the basic criteria detailed above.
  • Work out how much you can borrow sensibly and over what term.
  • Make sure you check your credit report and look for ways to improve your credit score.

If you’d like to read more about applying for credit before you get started, check out our related guides.

And finally…

As with any financial decision, consider:

  • Whether this is the right option for you.
  • The risks of taking on too much debt.
  • The cost and time it’ll take to repay anything you borrow.

Compare borrowing options from MBNA.

Please note: the content on this page is not intended to be taken as financial advice or recommendation made by MBNA. You should seek independent financial advice if unsure about your financial needs.