Compare Online Loans

We’ll walk you through how online loans work, how to apply for one and the pros and cons of getting one.

Table of contents

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

What is an online loan?

An online loan is one you are able to apply for entirely online without needing to visit a physical bank or building society.

Online lenders allow you to research and apply for your loan - from eligibility checks to getting money into your account, all from the comfort of your home or mobile phone.

Due to the varying options available it may be easier to get approval from an online loan provider than a high street bank, but interest rates can be higher, which sometimes means an online loan will cost you more.

Online loans can be used for any purpose, including buying a car, paying off debt, or covering the cost of an event like a wedding or holiday.

How do online loans work?

It depends on the type of loan you want, but here's how most online loans work;

Unsecured online loans are typically borrowed for between one and five years, although some online loan companies offer loans for less than 12 months.

For most types of loans, you'll need a good credit history and proof of income to demonstrate you can afford to repay the loan, but lending criteria may vary.

Online direct lenders may initially perform a soft credit check, which is only visible to you, to establish if you are eligible and either reject or accept your application instantly. The lender will typically then do a full credit check (also known as a hard credit check) when you make your full application. A hard credit check is visible to other lenders who may view your credit report.

If your loan application is approved, you'll usually get the money transferred into your current account shortly after you agree on the terms and conditions.

An online loan broker does not lend money directly but works with a panel of direct lenders. If you apply for a loan via a broker, they may perform a soft search, which other lenders won’t be able to see on your credit report, to check your eligibility and affordability. They'll then reach out to a range of online lenders to find a loan that suits your needs, before you apply directly.

If your online loan is approved, you may be able to get the funds in your account the same day or within 24 hours, although some lenders may take a few days to process your application.

Where can I get a loan online?

You can get an online loan from a direct lender, bank, building society, credit union or via a loan broker who works with a panel of lenders.

If you want to apply for a loan online, you can find a wide range of online lenders and loan brokers when using an internet search engine like Google, Bing or Yahoo.

Using a comparison website like Choose Wisely is often a good starting point because you can check your eligibility before you apply.

If you've not heard of a lender, broker or price comparison website before, you can always check the FCA's register to ensure the firm is regulated.

How much can I borrow online?

Some online lenders offer loans up to £10,000, but it varies between loan companies. Some high-cost, short-term lenders specialise in small loans between £100 and £1,500, whilst others may have a minimum lending sum of £1,000.

Ultimately, the amount you can borrow is the sum a lender agrees to lend you, which depends on your ability to repay the loan over the agreed timeframe and your credit score.

What information do I need to apply for an online loan?

This depends on the lender, but typically the information you'll need includes:

  • Proof of identity
  • Proof of residence
  • Proof of income
  • Employer details or evidence of self-employment

You will need a current account with the facility to set up a direct debit or standing order too.

Can I apply for an online loan with bad credit?

Yes, you can, but you'll likely pay higher interest rates, making the loan more expensive. Some online loan companies specialise in loans for people with bad credit or low credit scores.

If you have a poor credit history, an online loan broker could be the best place to start because they can assess your eligibility using a soft search and help to find you a suitable lender.

If you need to borrow money and have a bad credit score, but you don’t need the money urgently, it might be better to spend time working on repairing your credit score using a credit building product so you can get a better deal on your borrowing.

What are the alternatives to online loans?

There are several alternatives to online loans:

Personal loans

Most high street banks and building societies offer personal loans, often with low interest rates. If you apply for a personal loan with your own bank, approval is often instant, and you'll get the money quickly, but you'll need good credit and affordability evidence.

0% credit cards

This type of payment card allows you to use borrowed money to pay for goods and services for a short time. New credit cards often come with an introductory 0% interest rate which means you could borrow for free for up to 36 months. However, interest rates can be high once the interest free period ends so this can be an expensive way to borrow in the long term.

Guarantor loans

An unsecured loan where someone else you know - often a friend or family member, guarantees that the loan repayments will be made if you can’t make your repayments. You may pay a higher interest rate if you can’t provide evidence of income and you'll need to have a good relationship with your guarantor.

Credit union loans

Credit unions are not-for-profit community organisations. Their loans are quite flexible, so you may be able to borrow a small amount over a short term and repay early without penalties. To qualify for a credit union loan, you'll have to be part of a community or have savings with them.

Buy Now Pay Later

An interest-free, point of purchase credit option available from most online retailers. This is a way to spread the cost of online shopping but less flexible than an online loan.

What are the pros and cons of online loans?

Online loans are a helpful way to get finance quickly, and good online loan companies offer low-interest loans with flexible payment options.

However, there are also disadvantages to borrowing online, so weigh the pros and cons before applying.

  • Simple and convenient application process
  • If approved, you'll get the money quickly
  • Can spread the cost of large purchases
  • Can help with short term cashflow problems
  • A fixed, regular repayment helps you budget
  • Obtainable, even if you have bad credit
  • Managed properly, a loan can help to improve your credit score
  • May have high interest rates and additional fees
  • You could damage your credit score if you can't repay what you owe
  • Multiple loan applications can negatively impact your credit report

Online Loans FAQs

Will an online loan affect my credit score?

Getting a loan will not adversely affect your credit rating as long as you repay on time and stick to the agreement terms. Infact, if you keep up with all your repayments, you should see your credit score improve over time.

When you apply for a loan online, a record of it will be left on your credit report, so it’s important to avoid multiple applications in a short period of time, otherwise it will appear you’re desperate for credit, which may put potential lenders off.

If you're concerned about multiple applications impacting your credit score, use a comparison site like ours who will check your eligibility for an online loan lender using an eligibility checker that won’t leave a record on your credit report for other lenders to see - only you will be able to see that a soft search has taken place.

Can I apply for a loan online?

Yes, you can apply for a loan online via a direct lender, comparison site or online loan broker. Comparison websites like ours will compare regulated direct lenders and you can use filters to narrow down your search.

Are online loans safe?

The finance industry is regulated by the FCA (Financial Conduct Authority) and all companies involved in credit broking or lending must be approved by the FCA.

Before you use an online loan provider, whether it is a broker or direct lender, make sure they are approved by the FCA by checking the loan company is on the FCA Register using its Firm Reference Number.

You'll also want to be sure your personal information is safe, so check if your online lender is registered with the ICO (Information Commissioners Office).

As part of the Data Protection Act, to safeguard individual's personal information, all credit brokers and lenders processing data in the UK must be registered with the ICO.

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.

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