Compare Bank Loans

In this guide we’ll walk you through what a bank loan is, how they work and how to apply for one.

Table of contents

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

What is a bank loan?

A bank loan is when you borrow money from a company with a banking licence, such as a bank or building society. Some supermarkets, for example, also offer loans because they also hold banking licences.

Traditionally to get a bank loan, you used to have to visit a branch on your local high street and speak to a bank manager about applying for a loan.

Nowadays, it’s still possible to apply for a loan by speaking with a team member at a high street bank branch; however, all banks now allow you to apply for a bank loan online too.

In addition to traditional bank loans, there are also lenders online that you can apply for a loan with, that don’t have physical branches on high streets. You can apply for a loan with digital lenders without the need to speak to anyone.

Lenders online that offer personal loans must be regulated by the Financial Conduct Authority (FCA), so even if you’ve never heard of them, you can check that they are present on the FCA's register before applying.

How do bank loans work?

Bank loans and personal loans from online lenders work in the same way. You’ll be asked to fill out an application form asking about your financial circumstances, including how much you earn and how much you spend on things like rent and bills each month.

A bank or online lender will also check your credit report to see how you’ve managed any credit products in the past - like your mobile phone contract or any credit cards or overdrafts you’ve ever had.

After completing these checks, a lender will determine how much money to lend you and what annual percentage rate (APR) to charge you.

APR is how much interest you’ll pay each year. Generally speaking, the lower this figure is, the cheaper your loan will be. Interest is charged on top of the amount you’ve borrowed, meaning you’ll always pay back more than you’ve borrowed.

Lenders charge interest because that’s how they make a profit, and it costs them money to set up and maintain the loan for you.

Once your application is approved by a bank or online lender, the money will be sent to a current account of your choice.

You’re then free to spend the money how you wish. Typically people who take out loans do so for;

  • Buying a new car
  • Repairing an existing car
  • Whitegoods like a new fridge or washing machine
  • A funeral
  • A wedding
  • Holidays
  • To cover significant expenses like Christmas
  • Unexpected expenses like a broken boiler
  • Debt consolidation
  • Home improvements

During the first month, you’ll be expected to start repaying your loan and the agreed interest in monthly instalments. You’ll be told upfront how many repayments you’ll need to make and how much each will be before you agree to the loan.

What's the difference between a secured and unsecured loan?

When researching different borrowing options, you’ll see loans described as being either secured or unsecured.

Secured loans tend to be used by people who need to borrow large sums of money, and the lender will need them to provide an asset - usually a house they own, as security in case they are unable to make the monthly repayments. If the borrower fails to repay the loan, the lender will use the property to pay back what they’ve borrowed.

Unsecured loans tend to be used by people who need to borrow smaller amounts of money that aren’t tied to an asset, which means this type of loan is potentially riskier for lenders. Because of this, the interest lenders charge on unsecured loans tends to be higher.

Who can get a loan from a bank?

As long as you’re 18 or over, living in the UK and in paid employment or receiving a regular income, you can apply for a loan with a traditional high street bank.

Most banks will turn you down for a loan if you’re a full-time student, have been declined for credit in the past month, if you’ve been made bankrupt or if you have a CCJ on your credit report.

Most banks also won’t approve you for a loan if you want to borrow the money to put down a deposit on a property, to invest in stocks and shares or if you’re using the money to gamble or for anything illegal.

If you have bad credit, you may find it harder to be approved for a loan from a traditional high street bank, but there are lenders you can find online who may be prepared to lend you money depending on your circumstances.

Loans for bad credit tend to be smaller in value, and you’ll pay more interest because you’re perceived as riskier to lend to than borrowers with a good credit score.

If you’re looking for the best bank for a personal loan, you’ll need to consider what you mean by ‘best’. If you mean the cheapest, you can find this out using a comparison site like ours and an eligibility checker to reveal the providers most likely to lend to you.

If for you, the best bank for personal loans means a bank with excellent customer service with easy access to your local branch, then you could check the bank's reviews online to find out which banks score highly for customer service and opening hours.

How do I get a bank loan?

There are a few steps you’ll want to take when applying for a loan. We’d recommend;

Thinking about why you want the loan

Do you really need a loan? Are there any alternatives? Could you wait and save instead? Is there an alternative credit product that may suit your circumstances better?

Comparing loans from different types of providers

Use a comparison site to compare your options from different types of providers. You may need to use more than one to compare the whole of market, including banks and supermarkets.

Use an eligibility checker

Use an eligibility checker online like ours to find out the lenders most likely to accept your application. These checkers use a soft search, meaning the search is only visible to you and won’t appear on your credit report, so you can do this as often as you like.

Working out if you can afford the repayments

It’s really important to sit down and go through all your incomings and outgoings to work out if you can genuinely afford the repayments. If they overstretch you, you shouldn’t be considering a loan and may need to explore different options.

Fill out an application

Once you’ve found the right loan for your circumstances, and feel sure you can afford the monthly repayments, you can apply in person at a bank or online. The application form will include your personal details, bank details, information about your employment and any other income, address, and where you lived previously.

How much loan can I get from a bank?

The amount of money you can borrow from a bank or online lender will depend on your circumstances. Lenders will check your affordability and how much you can afford to repay monthly before offering you a sum based on your income, outgoings and the number of people who depend on you.

If you use an online loan calculator, you can see how much your monthly loan repayments would be over 1 to 7 years. Typically people will take out a bank loan from £1,000 to £50,000.

If you apply to borrow a certain amount and the lender doesn't think you’ll be able to afford the repayments, they may still lend you money, but offer to lend you less.

How much interest is on a bank loan?

Bank loan interest rates vary depending on providers. Different lenders will charge various rates, and the rate offered might differ from what you’ve seen advertised because bank loan rates are worked out according to your credit history. The riskier you’re perceived to be, the more interest you will likely be charged.

If you have a good credit rating, typically the average APR on personal loans of £5,000 over three years is between 7%-8%; however, rates can be as low as 3% and as high as 99.9%. That’s why it’s essential to research and compare lenders before you agree to anything.

What happens if I don't pay my bank loan?

Keeping up your loan repayments is important and should always be a priority; otherwise, you’ll be charged fees. If you default on a loan by missing several repayments, you could find it harder to be accepted for credit products in the future like mortgages, credit cards and even a mobile phone contract.

When you apply for a loan, you must feel confident you can afford the repayments by including them in your monthly budget. Get into the habit of checking your bank account regularly to ensure you have enough money to meet the repayments.

It’s your responsibility to set up a direct debit, so your loan repayments are made automatically. Setting up a direct debit for the same day you get paid can help to make sure you always have enough money in your account for your loan repayments.

If you realise you’re not going to have enough money in your account for the repayment, the first thing you need to do is contact your lender. They may be able to help find a solution by offering a payment plan to reduce your payments. The amount you owe won’t change, but the lender may spread what you owe over an extended period to help you.

There can be serious consequences if you stop communicating with your lender and cease to repay what you owe. Your debt may be sold to a debt collection agency that will contact you via the telephone or come to your home to ask for payment.

If you continue to ignore your lender, eventually, you may be notified by a letter that your lender is issuing a County Court Judgment (CCJ). A CCJ is recorded on your credit report for up to six years, making it exceptionally challenging to be accepted for any form of credit and should be avoided at all costs.

What are the pros and cons of bank loans?

  • Access to the money you need in one lump sum
  • Loans often have fast approval times, making them useful for unexpected costs
  • Personal loans often have lower interest rates than credit cards and overdrafts
  • It is possible to take out a loan to consolidate debts, making it easier to manage what you owe
  • Unsecured personal loans don't require you to have collateral such as your home to get approved, meaning you won't have to put your home up as a guarantee that you'll repay what you've borrowed
  • Some personal loans will charge fees for setting up the loan or for repaying your balance early, known as early exit fees
  • If you're late with a repayment, some lenders will charge you a penalty for making your repayment later than agreed
  • Personal loans tend to have higher monthly repayments than credit cards - most cards allow you to pay a minimum monthly amount which tends to be smaller than a loan repayment
  • Interest rates for borrowers with bad credit might pay higher interest rates than other options
  • Bank loans can have more strict requirements than other types of lending options
  • If you take out a secured loan and you don't keep up with your repayments, you could lose your home

Bank Loan FAQs

What is the best bank loan?

The best bank loans are entirely dependent on your circumstances. They are all different, and what works out as the best bank loan for one borrower won’t work well for another, so it’s vital you do your research.

Can you get a bank loan at 18?

Yes - most lenders will consider applications from anyone aged 18 or over, providing you live in the UK and have a regular source of income, but it’s not guaranteed because you’ll need to meet the lender’s eligibility criteria.

Lenders will also check your credit history, so if you’ve never taken out any form of credit before, you might find it more challenging to find a provider willing to approve you for a loan.

If you’re new to borrowing, your credit score will be low because there won’t be any data available to prove you’re good at managing your finances. In this case, you may find lenders are only prepared to lend you small amounts, and interest rates may be high.

The quickest way to build your credit score is by taking out credit products, such as a mobile phone contract, and ensuring you always repay everything you owe in full and on time. Slowly but surely, your credit score will improve, and you’ll gain access to products on the market with better deals, making it cheaper for you to borrow in the long run.

Can you extend a bank loan?

This will depend on your lender. Nothing stops you from contacting your loan provider and requesting an extension, but you may be charged a fee, and the loan will take longer to pay off, costing you more overall in interest charges.

Is a bank loan a good idea?

There isn’t a straightforward answer to this question because it will entirely depend on your circumstances, what you need the money for and whether or not you can afford to repay it without overstretching yourself.

The best bank loans aren’t the same for everyone. One way of learning if a bank loan is a good idea would be to do lots of research before you apply for one, looking at all your options for borrowing and comparing rates with different providers online.

If you’re unsure and would like some help, a good option is to pay to speak to an independent financial advisor or speak to a charity like Money Helper for free financial guidance.

A loan is not a good idea to pay for things like rent or food. If you’re considering applying for a loan because you’re struggling to pay for the basics, you need to seek help from charities like Step Change or Money Helper.

For some people, a loan might be a good idea, but for others, it could have a negative impact on their life and may have significant financial implications if they cannot afford to pay it back.

Can I transfer a loan to another bank?

Technically it isn’t possible to transfer what you owe to another bank, because you’ll always need to pay back the bank you borrowed the money from; however, what you can do is a balance transfer.

A balance transfer is when you take out a loan from a different lender to pay off your existing one. Some people do this to save money on interest charges. It’s important you find out if your existing lender will charge you a fee for paying off your loan early before you choose to do a balance transfer.

Can you pay bank loans off early?

Yes, you can always pay back a personal loan early; however, you need to be aware that most banks and online lenders are likely to charge an early exit fee to do so.

The cost of an early exit fee will depend how much balance you have left. You’ll usually be charged the interest the lender would have made had you not exited early from your agreement but this may be capped to one or two months' worth.

You may save by paying back your loan early, despite paying an early exit fee, but you’ll need to work out if you’d be better off simply sticking to your original agreement. There are calculators available online which can help you work this out.

Can I get a bank loan with bad credit?

Most traditional high street lenders will turn you away for a loan if you have bad credit, but don’t let that put you off if you need a loan.

These days there are lenders online which provide specialist loans designed for borrowers with a poor credit history.

You’ll find the loans you’re offered with bad credit are often for lower amounts, and you’ll pay higher interest rates too, meaning the loan will cost you more in total.

Some providers will require you to have a guarantor if you need a loan and you have bad credit. This is when you get a friend or family member to guarantee that they’ll pay the loan back if you can’t.

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

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.