12 Month Loans

If you’re looking for a personal loan to borrow over 12 months, we’ll take you through the pros and cons, and explain how they work.

Table of contents

Written by Mark Grimley
Read time: ~5 mins
Published: 28th September 2023

What is a 12 month loan?

A 12 month loan is money lent to you in exchange for monthly repayments of the loan’s original value over the course of one year plus added interest.

Loan terms come in all shapes and sizes - a 12 month loan simply means you need to pay the money back to the company you borrowed it from within 12 months, but loan providers offer lots of different time frames to allow you to repay what you owe.

It’s worth exploring alternatives, which we’ll dig into below, thinking carefully about the length of time and repayments, before you apply for any type of credit.

How do 12 month loans work?

Various lenders can offer to lend you money over 12 months, typically between £100 to £5,000 or more.

The amount you can borrow will depend on a few factors. These include;

  • Information on your credit report held by credit reference agencies in the UK
  • Public records, such as whether or not you're registered to vote
  • The lender's own data - of you're a current or previous customer of theirs
  • Your application form, which will reveal information about your income and outgoings

The better your credit history, the more likely you may be offered lower interest rates on a 12 month loan or any type of borrowing.

‘Interest’ is the amount a lender will charge you for borrowing money from them. It costs a lender money to set up a loan and maintain it for you, so the interest you pay goes towards processing the loan and is also how a lender will make a profit.

Broadly speaking the lower the interest rate, the cheaper the loan is (without taking into account any fees). The higher the interest rate, the more expensive the loan will work out for you.

Before applying for a loan you’ll need to check if a lender will charge you any fees for setting up the loan or paying it off early, also known as early exit fees.

The annual percentage rate, also known as the APR of a loan, is the easiest way to compare the total cost of a loan to make a true comparison of different products available. This will help you by making sure you’re getting the best deal and the right product for you.

We help you to compare your options by calculating both the interest you’ll pay over a year and any fees a lender may charge you too, making it easier than ever to find the best loan for you.

What can I use a 12 month loan for?

Once the loan is in your account, it’s entirely up to you what you spend the money on.

Examples of what borrowers typically spend their loans on over 12 months include;

  • Car repairs
  • A broken boiler
  • A funeral
  • Unexpected bills
  • White goods
  • A new car
  • A bike
  • Christmas presents
  • A holiday abroad

It’s essential to determine how much a loan will cost you in interest before deciding to take one out. If you need to make a necessary purchase, borrowing to pay for the item will mean you’ll pay more than what it’s worth in the long run. This is because of the added interest you’ll pay by borrowing the money to pay for it, rather than paying for the item upfront.

If the purchase can wait and isn’t essential, you should consider saving up for the purchase instead.

Once you get into the habit of borrowing money for items you can’t immediately afford, you may face a lifetime of being in a cycle of debt. In the long run, this pattern can cost you dearly, so loans should only be considered for necessary purchases rather than to fund a lifestyle that means you're living beyond your means.

How much can I borrow with a 12 month loan?

How much you can borrow with a 12 month loan will depend on how much you can comfortably afford to repay each month.

Lenders will look at your income and offer you a loan based on your affordability. Borrowing too much can cause your debts to spiral if you overcommit to different types of credit, if, for example, you were to take out a loan, credit card and an overdraft all at once or within a short period of time.

If you’re looking for a loan, only borrow what you need and plan the repayments into your budget. Borrow as little as necessary and plan to repay it as quickly as possible to avoid interest building up.

Use an online personal loan calculator like ours to find out how much you could afford to repay each month, and the interest rates you’re likely to pay to determine how much you could reasonably afford to borrow.

How do I get a 12 month loan?

The first step in the process is to research your options. You can do this easily online and by using a loans calculator to determine how much a 12 month loan would cost you from different lenders.

Once you’ve done your research, you can either apply online with direct lenders, at a bank branch on the high street or via a comparison site like ours.

You’ll need to complete an application form which will include;

  • Your full name
  • Contact details
  • Date of birth
  • Address
  • Relationship status
  • Employment details
  • Employer details
  • Income
  • Your financial commitments
  • Any outstanding debt you have with other lenders
  • Living expenses

This information will help a lender better understand your financial situation, what you can realistically afford to repay and, together with your credit history, will form the basis of a decision to lend the money to you.

Most lenders use an automated process to work out whether or not to approve you for a loan, which means you can sometimes be approved straight away or within just a few hours.

Do I need collateral for a 12 month loan?

Whether or not you'll need collateral for a 12 month loan depends on whether the loan is unsecured or secured.

An unsecured loan means you don’t need to use an asset, such as your home, as security against the loan for the lender to sell if you can’t repay what you owe.

A secured loan requires you to use collateral - such as your home or a car, to guarantee that you’ll repay what you owe, or else the lender could take possession of your house or car to sell to recoup the funds to pay back what you borrowed.

Most short-term loans tend to be unsecured, so you won’t need collateral to be approved.

Will a 12 month loan affect my credit score?

If you apply for a loan, regardless of whether or not you’re approved, the application will be recorded on your credit report.

If you pay back what you owe in time and in full, your credit score will improve, meaning you’ll have access to better deals when you next want to apply for credit, including mortgages, loans and credit cards.

If you default on your 12 month loan, meaning you miss several payments, your credit score will suffer and you’ll find it harder to be approved for credit in the future and any credit you’re approved for in the future may also be more expensive.

Before applying for a loan, use an eligibility checker like ours, to find the lenders most likely to approve you for a loan. Eligibility checkers like ours only do a ‘soft search’ of your credit history, which is only visible to you.

Are there any alternatives to 12 month loans?

Several other options are available if you need access to money on a short-term basis. These include;

0% credit cards

This type of credit card allows you to borrow money interest-free during your introductory period. You usually need to have a good credit score to qualify for one.


Most overdrafts are expensive because of the rate of interest they charge but are easy to apply for via your bank account, and the money is usually available immediately. Some current accounts offer a 0% overdraft for a fixed period, but if your bank account charges interest, it’s best to reserve overdrafts for emergencies only.

Credit union loans

Credit unions are not-for-profit community organisations offering loans of small amounts over a short term, and you can repay early without penalties. However, some credit unions require you to have saved with them previously, and you’ll need to be part of a community.

Payday loans

A payday loan might be an option if you only want to borrow a small amount over a short period. They can be easier to be approved for, but do tend to charge much higher rates of interest.

Buy now, pay later

If the reason you need to borrow money is to pay for something you can purchase in a store or online, you might want to consider a buy now pay later scheme, which allows you to spread the cost of your purchase typically over one to three months.

What are the pros and cons of 12 month loans?

  • Access to cash quickly
  • Can be a cheaper alternative to standard credit cards and overdrafts
  • Helps to pay for emergencies or unexpected expenses
  • Can help your credit rating if managed responsibly
  • Higher rates of interest
  • Your approved interest rate may be higher than advertised depending on your circumstances
  • Your credit score will suffer if you cannot afford to repay what you owe and default on the loan
  • Fees for late or missed payments are typically high
  • If the loan is a secured one, you'll risk losing your home

12 month loan FAQs

Can I get a 12 month loan with bad credit?

It will be more challenging to be approved for loans over 12 months if you have bad credit, especially if you apply directly to a high street lender.

If you apply to a specialist bad credit lender online, your chances of approval are higher, but because the interest rates are likely to be higher, it’s important to consider whether or not you can afford the payments before committing to the loan.

Use an eligibility checker before you apply to find the lenders most likely to approve you. If you’re turned down for a loan you’ve applied for, resist the temptation to apply for a different one with another lender because making multiple applications in a short period can actually harm your credit score.

What happens if I default on my 12 month loan?

If you miss payments on your loan, this will be recorded on your credit report, which could affect your credit score, making it harder for you to access good deals on credit in the future, making borrowing more complex and more expensive.

The first course of action from a lender for non-payment would be a fee for late payment, and your interest rates could increase too.

If you miss several payments, a debt collection agency may be used to recover what you owe.

Usually, the last resort for a lender would be to issue you with a county court judgment (CCJ) which will be recorded on your credit report for six years.

CCJ’s can make it virtually impossible for you to be approved for things like a mortgage, credit card, loan or even a mobile phone contract when you have one, which can have a massive impact on your life.

If you’re struggling with your debts, you should first speak to the lenders or organisations you owe money to. They should be able to negotiate a payment plan, which might lower your monthly repayments - the amount you owe won’t reduce because you’ll pay the balance back over a longer period, but it could help to make your debt repayments more manageable.

The next step would be to talk to a professional for some impartial debt advice from a charity like Citizens Advice or StepChange

Do I need a guarantor for a 12 month loan?

Whether or not you need a guarantor depends on your circumstances and the lender’s eligibility criteria. There are plenty of 12-month loan lenders that do not require you to have a guarantor, but some do, so it’s best to do your research before you apply.

If you have a poor credit history you’re more likely to find lenders will insist on a guarantor before they’re willing to lend to you, in order to reduce the risk of the loan not being repaid.

In most cases, loans advertised as ‘no-guarantor loans’ are typically designed for customers with bad credit or those who don’t have a guarantor. These types of loans usually have higher interest rates than a standard loan.

Written by
Mark Grimley
Head of Partnerships & Take Control Author at Choose Wisely

Mark joined Choose Wisely in 2015. He continues to work in close contact with the providers, brokers and journalists operating in the world of consumer credit.

Important Information.

All of the information in this guide is correct at the time of writing.

If you complete a loan search application on the Choose Wisely website, the rates shown may vary based on your personal circumstances, are subject to status and are available to those aged 18 and over. Rates available range from a minimum of 13.9%APR to a maximum of 1721%APR Representative and loan repayment periods range from 3 to 60 months.

If you need financial advice you can visit stepchange, speak to citizens advice, call the national debtline or speak to moneyhelper.org.uk.

If you've been declined, please refer to your credit report to gain an understanding of why before making further applications.
You can access your credit report for free from Credit Karma, Clearscore or Experian.

Warning: Late repayment can cause you serious money problems. For help, go to moneyhelper.org.uk