Which Personal Loan is Best For You?

Now that we have a working understanding of personal loans, what they are, the various types of personal loans, how interest rates and how the terms of a loan can affect payments, how do we know which personal loan is best suited for us?

Much will depend on what the loan is for, why do you need a personal loan, and also your unique set of financial circumstances, such as your credit history.

Let’s begin with borrowers that may have a low credit score or bad credit.

Personal Loans For Those With Bad Credit

If you have a low credit score from either bad credit in the past, or it may be you have no credit to base a credit score on, then getting approved for a loan can be difficult.

Most lenders have guidelines or different breaking points/tiered credit scoring models they use to grant loans. That doesn’t mean someone with bad credit may not be able to get any form of personal loan, but they may pay more in interest.

However, there are some personal loans that are not based on credit scoring, payday loans and guarantor loans, and are aimed at those borrowers who need a loan, but have poor or no credit.

Payday loans are based on the borrower having a job, having a bank account, and being able to afford to repay the loan.

Guarantor loans are loans granted based on the fact the borrower has a guarantor, someone guaranteeing the loan; in essence saying if the borrower fails to pay the payments, I’ll pay them.

While both these loans are for those with bad credit, they are very different loans, and as such are for different reasons.

Payday loans need to be paid back on the borrower’s next payday, so usually within 30 days.

Guarantor loans can be for longer terms, 12 months, up to 60 months, five (5) years.

Someone with a financial emergency could make use of either type of loan, but if they needed additional time to pay back the loan, they may tend to lean towards a guarantor loan.

Lines of Credit

Lines of credit are personal loans usually associated with a company or business, but can also be extended to an individual.

You have a credit limit you can access, and spend to that limit. Similar to a credit card.

And as it is similar to a revolving line of credit like a credit card, the borrower can pay down the amount borrowed monthly, or in lump sums, to restore their credit limit.

Lines of credit are good in emergencies, but also good for those that may see an item they wish to purchase, perhaps a collector of cars, antiques, etc, and they come across a deal they wish to purchase.

The borrower does not need to go and secure financing, they can simply use the line of credit.

Credit cards

Credit cards are essential a line of credit, which can be accessed by using the card itself for a purchase, or even a cash advance.

The convenience of credit cards is what makes them popular, and they can also be used in an emergency, and have the payments spread out to be more affordable.


Overdrafts, while good for financial emergencies, in most instances are repaid upon the next deposit or money being paid into your account. The overdraft takes this payment first. So while good for emergencies, you need to be aware of the repayment terms.

Instalment Loans

Instalment loans is a broad term for many personal loans, but the common theme is they are unsecured loans, that the borrower makes monthly payments or instalments on for the term of the loan.

In the majority of instances, the borrower asks for a loan of XX of pounds, when the loan is approved, the money/cash is placed in the borrower’s bank account.

The loan can be for many different purposes.


While there are specific car financing options available, the majority of these do not allow you to own the car, or own the car until the loan is paid in full.

This means if you are looking to buy a car privately, you really need to get your car financing approved and in place, prior to shopping for a car.

By taking out a personal instalment loan, you are like a cash buyer, and if buying from a private seller, the seller in all probability is going to want cash for the sale.

If you have the cash from the loan, you can negotiate like a cash buyer.

One caveat is that the interest rates can be higher on a personal instalment loan, than a specific car financing option. The personal loan is unsecured, where as the car financing can be secured by the car, which can cause the interest rates to be lower.


A personal instalment loan can be used to consolidate other smaller loans, and also credit cards.

The credit cards may carry higher interest rates, and by consolidating them, you can pay them off quicker and save money on interest.

In addition, by consolidation the smaller loans and cards, you may be able to reduce your monthly payments. By paying one lower monthly payment, you can free up your budget, or pay extra to get out of debt quicker.

Home improvements

Personal instalment loans can be used for home repairs, or home improvements. Maybe add a conservatory to your home, or an extension, loft conversion, etc.

Instalment personal loans can be for anything, a wedding, a holiday, sadly funeral expenses, to start a business, if you can think of a reason why you need a loan, a personal instalment loan may be the loan for you, as they can be used for any purpose.

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