How to Compare Loans - Factors to Consider Before You Take Out a Loan

How to Compare Loans - Factors to Consider Before You Take Out a Loan

Wondering how to compare loans? We know that comparing loans can feel like a daunting task, as it’s sometimes difficult to know where to start when so many options are available to you. Although the facts and figures presented by UK direct lenders can sometimes seem confusing, there are some fundamental factors to consider when comparing bank loans and other types of loans to help you make the right decision.

So, whether you’re looking to compare short-term loans, or compare bad credit loans, we’ve got some top tips to help you.

What type of loan do I need?

This is probably the first question you need to ask yourself. There are many different types of loans on the market:

Unsecured loans

These loans do not require you to put forward security, such as your property, to secure the loan. Unsecured loan providers typically offer lower loan amounts (usually up to around £30,000) over shorter periods, ranging from a few weeks to a few years. Interest rates are also often higher and other charges may apply. Types of unsecured loans include:

  • personal loans

  • short-term loans

  • peer-to peer loans

  • guarantor loans

  • business loans

Our guide on ‘Three things you need to consider when applying for a payday loan’ has lots of helpful information if this is the route you choose to go down. Here you’ll find more on interest rates, paying off loans, and the different kinds of fees you can expect.

Secured loans

Secured loans are those that are secured against a major asset - usually your home. These loans are often used by those who require a larger loan amount (from around £10,000 to hundreds of thousands) and to repay it over a longer term - usually several years. Interest rates can be lower than for an unsecured loan, but you risk losing your home if you can’t keep up with the repayments. Types of secured loans include:

  • Secured homeowner loans (second-charge mortgages)

  • First charge mortgages

  • Vehicle finance

  • Bridging loans

When comparing loans, establishing whether a secured or unsecured loan is the right choice for you is the first decision to make. To establish what might work best for your situation, consider how much you need to borrow and for how long. If you want to borrow larger amounts over a long period, then a secured loan might be your only option, but remember that your home is at risk if you default. If you need to borrow a smaller amount and can repay over several months, for example, then an unsecured loan might work best for you.

As mentioned, it’s important to think carefully about taking out a loan, and you’ll want to make a well-informed decision that aligns with your financial capabilities and goals.

How do I compare loan deals?

Once you have decided the type of loan you want to apply for, it’s sensible to compare the lenders on the market and the deals they are offering. Loan comparisons are key to ensuring you choose the right option for you. Remember, the deal a lender offers you will depend on various factors, including your credit score, your financial situation, your employment status and your income. Here are the basic areas to compare:

How much can I borrow?

The amount you’ll be able to borrow is dependent on various factors such as your credit history, your current financial situation, and the type of loan you’re seeking. Take a look at the minimum and maximum loan amounts the lender offers and check that this fits your requirements and your repayment abilities.

While every lender is different, you’ll generally find payday loans starting from around £1000. If you’re looking to borrow a larger amount, lenders may offer you a longer-term loan of up to £25,000, under the correct circumstances.

If you’re thinking of taking out a personal loan, we’ve got a handy guide on all you need to know about how much you can borrow with a personal loan. You’ll find further information on the different variations of personal loans, how to secure one, and the factors to consider before applying.

How long can I borrow for?

Different lenders have different terms and conditions when it comes to how long you’ll be able to borrow. So, it’s important to find out about each lender’s specific minimum and maximum terms over which they expect borrowers to repay loans. Then, think carefully about whether these terms are right for your financial situation, and whether you’ll be able to comfortably afford the repayments.

While we’re on the topic of loan repayments, here are some handy tips on how to pay off a loan faster.

What is the cost of borrowing?

The best way to compare lenders is to compare the cost of borrowing. You can do this by looking at the annual percentage rate (APR) charged on the loan, as well as the other fees applicable. The APR is the annual cost of the loan to the borrower for the entire loan term and includes the interest charged and other fees involved. Most lenders will advertise their APR as ‘representative’, which means the advertised APR only needs to be offered to 51 per cent of borrowers.

As a result, you may be offered a higher APR so take care when applying and receiving your loan offer, to ensure the APR you are offered is acceptable to you. To make extra sure you are happy with the cost of borrowing, you can also seek out the TAR (total amount repayable), which should show you the total amount you will end up paying over the term of the loan, including the loan amount, charges and interest.

Are there any other charges applicable?

When comparing loans, as well as the APR, it makes sense to establish if you could incur other charges. These could include:

  • Early repayment fees

  • Arrangement charges

  • Late payment penalties

Our guide on loan costs has all the necessary insights on calculating the cost of a loan, including interest rates and the penalties mentioned above. It’s always important to bear these in mind when calculating if a specific loan is right for your situation.

What are the lending criteria?

As well as finding a low-cost loan that suits your requirements, you’ll need to ensure that you qualify for your chosen loan. Lenders may check any or all of the following before offering you a loan deal:

  • Your credit score

  • Your employment status

  • Your salary

  • Your financial commitments

  • Your age

  • Whether you have a UK address and bank account

  • Whether you are a homeowner

Some businesses will offer you the chance to check your credit score before you start applying for loans, which will help you avoid applying and being turned down. If this should happen, your credit score can be negatively affected.

I know I have bad credit; will I be able to access a loan?

Some lenders of both secured and unsecured loans will consider lending to people with different credit histories. However, you may find that interest rates and charges on these loans are very high, which can make the cost of borrowing unaffordable and can even lead to further financial problems. For those who want to avoid the cost and financial commitment of taking out a loan, there are alternatives to getting cash fast that could be cheaper, including arranged bank account overdrafts, zero or low-interest credit cards, credit unions, and saving or borrowing from friends or family.

Although comparing loans isn’t always a straightforward process, it’s worth putting in a little effort to shop around for the best deal to suit you. Choosing the right loan can impact your financial well-being, and you must be clued up on interest rates, fees, and specific repayment terms before applying.

Equally, the lending market has opened hugely since the financial crisis, and borrowers have so many more options now. Luckily, it’s also never been easier to compare loan providers using online tools, which can help consumers take charge of their financial decisions. So, before taking out a loan, do your homework! Your wallet will thank you.

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Representative Example: Borrow £400 for 4 months, 4 monthly repayments of £149.37. Total repayment £597.48, interest rate p.a. (fixed) 255.5%. Representative APR 939.5%. Compare Moneyboat loans.

Warning: Late repayments can cause you serious money problems. For help, go to

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Representative Example: Borrow £400 for 4 months, 4 monthly repayments of £149.37. Total repayment £597.48, interest rate p.a. (fixed) 255.5%. Representative APR 939.5%.Compare Moneyboat loans.

Warning: Late repayments can cause you serious money problems. For help, go to