CoverMapHow personal loans work
A personal loan is a lump sum you borrow and pay back in fixed monthly instalments over a set term. MoneyHelper describes most personal loans as at least £1,000, usually repaid over one to five years. They are unsecured, so your home isn’t at risk if you fall behind. Your credit file is, though.
The rate is normally fixed for the whole term. That makes budgeting simple: you know the monthly payment and the total cost on day one. The trade-off is that you pay interest on the whole amount from the start, and you can’t borrow more without a new application.
Personal loan interest rates in 2026: the averages
Two measures are worth knowing before you compare loans.
- Bank of England: the effective interest rate on new personal loans to individuals rose to 9.96% in August 2026, from 9.86% in July. This is the average rate borrowers actually took out, not an advertised rate. The figure was published on 29 September 2026.
- Moneyfacts: the average rate on a £10,000 loan over five years was 8.2% in December 2025, down from 8.4% a year earlier. On a £5,000 loan over three years it was 10.7%, down from 11.2%.
Both figures sit well above the cheapest headline deals. Moneyfacts’ Rachel Springall said pricing for unsecured lending is “more in tune with the risk appetite of lenders”.
Compare personal loan rates: lowest representative APRs (checked October 2026)
The table shows advertised representative APRs for loans of around £7,500–£15,000.
| Lender | Representative APR | Amount band | Term for that rate | Who can apply |
|---|---|---|---|---|
| M&S Bank | 5.9% | £7,500–£25,000 | 1–7 years | New and existing customers |
| Tesco Bank | 6.2% (Clubcard) / 6.6% (non-Clubcard) | £7,500–£25,000 | 1–5 years | Open to all; lower rate for Clubcard members |
| Santander | 6.4% | £7,500–£25,000 | 1–5 years | Open to all, aged 21+ |
| Lloyds Bank | 7.4% | £7,500–£25,000 | 1–5 years | Open to all; existing customers can borrow more |
| John Lewis Money (provided by Zopa) | 9.9% | £10,000 example | 1–7 years | Open to all, aged 20+ |
Source: lenders’ own rate pages and MSE cheap personal loans best buys (updated 1 October 2026), checked 5 October 2026. Rates are representative; the rate you are offered may be higher.
MSE’s best-buy table, updated on 1 October 2026, lists M&S Bank as the cheapest for £7,500–£25,000 at 5.9%. For £25,001–£50,000 it lists First Direct at 5.9%, but only for existing customers. Some lenders also reserve their best rates for existing customers, such as NatWest and RBS on Moneyfacts’ tables.
Why your loan rate depends on the amount and term
Loan rates are priced in bands. MoneyHelper notes that “the interest rate is often cheaper the more you borrow”, and MSE says rates often drop at thresholds of £3,000, £5,000 and £7,500. M&S Bank’s own table shows the effect clearly:
| Loan amount | M&S Bank representative APR | Santander representative APR |
|---|---|---|
| £1,000–£2,999 | 14.9% | 10.5% |
| £3,000–£4,999 | 9.9% | 8.0% |
| £5,000–£7,499 | 6.9% | 7.5% |
| £7,500–£25,000 | 5.9% | 6.4% |
Source: M&S Bank personal loan rates table; Santander personal loans page. Checked October 2026.
So borrowing just under a threshold can cost more than borrowing slightly over it. MSE points out that topping up to reach a cheaper band only makes sense if you can afford the repayments.
Term matters too. Several headline rates only apply to set terms: Tesco, Santander and Lloyds quote theirs for one to five years. M&S says the amount and term you request both affect the rate. A longer term lowers the monthly payment but usually means more interest overall.
What affects the rate you’re offered
The advertised figure is a representative APR. Under the FCA definition, a lender must reasonably expect at least 51% of the agreements that come from its advert to be at or below that rate. Up to 49% of successful applicants can be offered more.
The spread can be wide. M&S quotes 5.9% for £7,500–£25,000 but up to 16.9% in that band. Tesco states a maximum of 34.5% APR, and Santander and Lloyds 29.9%. Tesco says the rate depends on the amount you apply for and its review of your circumstances. Lenders also set entry rules: M&S requires income of at least £10,000, Santander at least £10,500 for loans under £20,000, and John Lewis Money at least £12,000.
Your credit history is a big part of that review. Our guides on how credit scores work and how to improve your credit score explain what lenders look at.
Use a soft-search eligibility checker first
Eligibility checkers run a soft search. MoneyHelper says this lets you see if it’s worth applying “without leaving a mark on your credit file”. ClearScore, Experian and MSE all offer one, and many lenders, including Tesco and John Lewis Money, have their own. A soft search shows on your own file but isn’t visible to other lenders.
Total cost example: £10,000 over 5 years
Here are three representative examples published on lender pages, checked October 2026:
| Lender example | Rate | Monthly payment | Total repayable |
|---|---|---|---|
| Tesco Bank: £10,000 over 5 years | Fixed interest 6.4084% a year | £195.23 | £11,713.80 |
| John Lewis Money (Zopa): £10,000 over 5 years | 9.9% APR | £209.91 | £12,594.46 |
| Lloyds Bank: £10,000 over 48 months | 7.4% APR | £240.21 | £11,530.08 |
Source: Tesco Bank, John Lewis Money and Lloyds Bank loan pages, checked 5 October 2026.
On the same £10,000 over five years, Tesco’s example costs £1,713.80 in interest and John Lewis Money’s £2,594. That gap of nearly £900 comes from the difference in rate. The Lloyds example shows the term effect: a shorter, four-year loan means a higher monthly payment.
Fees, early repayment and cooling off
Arrangement fees
M&S says there are no fees on its loan, and John Lewis Money’s example shows a £0 fee. Any compulsory fee would be included in the APR.
Paying off a loan early
You have a legal right to repay a regulated loan early, and the total you pay is reduced. Citizens Advice says you write to the lender for an “early settlement figure”. You then have 28 days from when they receive your request to pay it.
Lenders can add a charge. Under section 95A of the Consumer Credit Act, for fixed-rate loans this only applies if you repay more than £8,000 in any 12 months. It is capped at 1% of the amount repaid early, or 0.5% if one year or less remains, and never more than the interest you would have paid. Rules under the Consumer Credit (Early Settlement) Regulations 2004 work differently. MSE says those allow up to two months’ interest, or one month’s if less than a year remains.
In practice, lender terms vary. Lloyds says early settlement “may incur up to 58 days’ interest”, while Tesco quotes a two-month interest charge. Both Lloyds and Tesco, along with Santander, let you make extra payments at no cost. Check the settlement terms in the agreement before you sign.
14-day cooling-off period
Section 66A of the Consumer Credit Act gives you 14 days to withdraw from most credit agreements. The period starts the day after the latest of: the agreement being made, or you receiving your copy of it. You then have 30 days to repay what you borrowed plus interest for the days you had it, with no other fees. It doesn’t apply to loans secured on land or to most agreements over £60,260.
Secured, guarantor and high-cost loans
- Secured loans: MoneyHelper says these are “usually at a lower interest rate” and may let you borrow more, but the loan is secured on your home or another asset, which you might lose if you can’t keep up repayments.
- Guarantor loans: someone else agrees to repay if you can’t. MoneyHelper notes they “often have higher interest rates”, and missed payments can affect both of you.
- High-cost lenders: rates for people with weaker credit can be much higher. Moneyfacts’ tables show 118 118 Money at 49.9% and Evlo at 99.9% representative APR. On a £5,000 three-year loan, that means repaying £8,783.28 and £12,225.96 respectively.
- Payday loans: the FCA caps high-cost short-term credit. Interest and fees can’t exceed 0.8% a day of the amount borrowed, default fees are capped at £15, and you never repay more in fees and interest than 100% of what you borrowed.
Alternatives to a personal loan
For a planned purchase you can clear within a year or two, a 0% purchase credit card may cost nothing in interest if you repay before the deal ends. See balance transfer vs 0% purchase cards for how they compare. If you want to combine existing debts into one payment, our debt consolidation guide covers the main options.
Risks, and where to get free debt help
A loan is a fixed commitment for the whole term. Missed payments can also damage your credit score.
If you are already struggling with repayments, get free advice before taking on new credit. MoneyHelper offers free guidance, and StepChange is an independent debt charity offering free advice online.
Frequently Asked Questions
What is a good personal loan interest rate in the UK right now?
In October 2026 the lowest representative APR in MSE’s best-buy table is 5.9% for £7,500–£25,000. For comparison, the Bank of England’s average effective rate on new personal loans was 9.96% in August 2026. Your own rate depends on the amount, term and your circumstances.
Why are small loans more expensive?
Lenders price loans in bands, and rates usually fall as the amount rises. M&S Bank, for example, quotes 14.9% for £1,000–£2,999 and 5.9% for £7,500–£25,000 (checked October 2026). MSE says rates often drop at £3,000, £5,000 and £7,500.
Will I definitely get the advertised rate?
No. Under the FCA definition of representative APR, at least 51% of agreements from the advert must be at or below that rate. Others can be offered more – Tesco states a maximum of 34.5% APR.
Will checking my eligibility hurt my credit score?
Eligibility checkers use a soft search, which MoneyHelper says won’t leave a mark on your credit file.
Can I pay off a personal loan early?
Yes. You have a legal right to settle early and the total you pay is reduced. For fixed-rate loans, section 95A of the Consumer Credit Act lets lenders charge only if you repay over £8,000 in 12 months, capped at 1% (0.5% if a year or less remains). Some lenders’ terms quote interest-based charges, such as up to 58 days’ interest at Lloyds.
Can I cancel a personal loan after signing?
Yes. You normally have 14 days to withdraw. You must then repay the money and interest for the days you had it within 30 days of giving notice.
Is a personal loan cheaper than a credit card?
It depends on how quickly you can repay. A 0% purchase card can be interest-free for a set period – see balance transfer vs 0% purchase cards. A loan gives a fixed rate and end date.
Sources
- Bank of England – Money and Credit, August 2026 (29 Sep 2026)
- Moneyfacts – How to cut the cost of debt in 2026 (2 Jan 2026)
- Moneyfacts – Personal loan rates (checked Oct 2026)
- MoneySavingExpert – Cheap personal loans (1 Oct 2026)
- MoneySavingExpert – Early loan repayments (25 Mar 2026)
- M&S Bank – Personal loan rates table
- Tesco Bank – Personal loans
- Santander – Personal loans
- Lloyds Bank – Personal loans
- John Lewis Money – Personal loans
- FCA Handbook – Glossary: representative APR
- FCA – Price cap on high-cost short-term credit
- legislation.gov.uk – Consumer Credit Act 1974, s.95A (s.66A covers withdrawal)
- MoneyHelper – Personal loans (also secured and guarantor loan guides)
- Citizens Advice – Paying off a credit agreement early