Comparing personal loans properly takes about 20 minutes and can save you hundreds or thousands of pounds. Most people compare the wrong thing — monthly payment — rather than the total cost of borrowing. Here is the correct way to do it.
Step 1 — Decide What You Actually Need
Before comparing anything, clarify:
- Amount: How much do you need? (Borrow only what’s necessary)
- Term: How long do you need to repay it? (Shorter = less interest; longer = lower monthly payment)
- Purpose: This can affect which product is most suitable (e.g. car loans vs personal loans; secured vs unsecured)
Step 2 — Understand APR
APR (Annual Percentage Rate) is the annual cost of borrowing, expressed as a percentage, including interest and mandatory fees. It allows you to compare loans like-for-like.
Representative APR ≠ your APR. At least 51% of approved applicants get the advertised rate. Your rate depends on your credit profile.
| APR | Description |
|---|---|
| Under 7% | Excellent — available with strong credit for £7,500–£25,000 |
| 7–12% | Good — mainstream rate for most borrowers |
| 12–20% | Higher — fair credit or smaller loan amounts |
| 20–40% | Poor credit or specialist lenders |
| 40%+ | High-cost credit — only credit unions are capped |
Step 3 — Calculate Total Repayable
Do not compare monthly payments. Compare total repayable = monthly payment × number of months.
Example:
- Loan A: £200/month × 48 months = £9,600 total
- Loan B: £175/month × 60 months = £10,500 total
Loan B has a lower monthly payment — but costs £900 more. This is a real trap that catches many borrowers.
Step 4 — Use Soft Search Eligibility Checkers
Before making a full application (which leaves a hard search on your credit file), use soft search eligibility checkers. These show your personalised likelihood of approval and often give your personalised APR — without affecting your credit score.
Most major lenders and comparison sites offer these. Run your details through 3–5 of them to see your realistic rate range before committing.
Step 5 — Check the Small Print
Mandatory checks:
- Early repayment charges — can you pay it off early without penalty?
- What is the actual total repayable (stated on the Key Facts Illustration)?
- Is there any payment protection insurance (PPI) being added? If so, it inflates cost. PPI is optional by law.
- What happens if you miss a payment? (Late payment fee? Immediate default?)
Worked Example — Comparing Three Loans for £10,000 Over 5 Years
| Lender | APR | Monthly payment | Total repayable | Total interest |
|---|---|---|---|---|
| Lender A | 6.9% | £197 | £11,820 | £1,820 |
| Lender B | 8.5% | £205 | £12,300 | £2,300 |
| Lender C | 11.2% | £217 | £13,020 | £3,020 |
On the same loan, the difference between Lender A and Lender C is £1,200 in extra interest — just from the APR difference. This is why rate comparison matters far more than monthly payment differences.
Step 6 — Consider Your Existing Bank First
Your existing bank knows your transaction history. If you have a stable income, low outgoings, and no missed payments, they can see this directly — without relying solely on a credit bureau score. This can result in a better-than-advertised offer for existing customers.
Many banks now offer a “personalised rate” tool in their mobile app for existing customers — check this before going elsewhere.
Comparison Checklist
| Factor | What to look for |
|---|---|
| APR | Your personalised rate, not representative |
| Total repayable | Monthly × months — the true cost |
| Early repayment | No charge, or capped at 2 months’ interest |
| Application footprint | Soft search for initial check; hard search only on full application |
| Fees | No arrangement fee on most UK personal loans |
| PPI | Opt out — never a mandatory requirement |
For the full range of borrowing options beyond standard personal loans, see the Loans and Borrowing Hub. If your credit profile means mainstream lenders aren’t competitive, see our guide to loans for bad credit.