Small personal loan for everyday expenses

A small personal loan is the plain, general-purpose version of borrowing: a fixed sum, a fixed term and usually fixed monthly repayments, which you can use for almost anything from a boiler repair to a new washing machine. Unlike a credit card, it has an end date. Unlike a payday loan, it is spread over months rather than weeks.

That simplicity makes it a useful tool for one-off everyday costs. It also makes it easy to use for things that a budget, a payment plan or a grant could have handled more cheaply. This page looks at when a small personal loan makes sense, how lenders price it, and the alternatives worth checking first.

How a small personal loan works

A personal loan is unsecured, which means it is not tied to your home or car. The lender pays the money into your bank account and you repay in equal instalments over an agreed term. The interest rate is generally fixed for the life of the loan, so you know from the start how much you will repay in total.

Mainstream banks often set a minimum amount for personal loans, and the lowest advertised rates are typically reserved for larger sums and applicants with strong credit histories. For very small amounts the rate can be noticeably higher, so a small loan is not necessarily a cheap one.

Everyday expenses it can sensibly cover

A small personal loan can be reasonable for a one-off, genuinely necessary cost that you cannot cover from savings, such as:

• replacing an essential appliance that has broken down;
• urgent car repairs needed to get to work;
• a deposit or moving costs, if repayments fit comfortably;
• dental or optical costs not covered by other help.

It is a poor fit for recurring costs such as rent, food or energy bills. If you need to borrow to cover regular spending, the underlying gap in your budget will still be there next month, with a loan repayment added. Our pages on borrowing to pay bills and help with rent look at better options in those situations.

What lenders look at

A UK lender must be authorised by the Financial Conduct Authority and must check that the loan is affordable for you. Expect it to consider:

• your credit history from agencies such as Experian, Equifax and TransUnion;
• your income and how stable it is;
• your essential outgoings, such as rent, council tax and childcare;
• your existing debts and how they are being repaid.

If your credit file has missed payments or defaults, mainstream lenders may decline or offer a much higher rate. Our guide to small loans with bad credit covers that scenario in detail.

Comparing offers properly

The headline rate in an advert is a representative APR, which only needs to be offered to a proportion of successful applicants. The rate you are offered could be higher. To compare like with like:

• use soft-search eligibility checkers so you can see likely offers without marking your credit file;
• compare the total amount repayable, not just the monthly payment;
• be cautious about longer terms: they lower the monthly payment but usually increase the total cost;
• check whether there is a fee for repaying early.

A loan calculator is useful for testing different amounts and terms before you apply.

Alternatives to check first

• Credit unions lend small amounts, often at lower cost than short-term lenders, and their interest is capped by law in Great Britain. Some also encourage you to build savings alongside the loan.
• Payment plans with the company you owe, such as a garage, dentist or energy supplier, can spread the cost without interest.
• Benefit advances: people on Universal Credit may qualify for an interest-free Budgeting Advance for one-off essential costs.
• Local welfare schemes and charities can sometimes supply essential items, such as cookers or beds, rather than cash.
• Help from family or friends, with a short written agreement so there are no misunderstandings.

For an overview of non-profit options, see our page on social micro-loans.

Warning signs and scams

Personal loan scams usually follow a familiar pattern. Be cautious if a "lender":

• contacts you first, by text, social media or phone, with a loan you did not ask for;
• promises guaranteed approval regardless of your circumstances;
• asks for any payment before the loan is released;
• cannot be found on the FCA Register, or uses contact details that differ from the register.

Genuine lenders take repayments after paying out the loan, never before.

If repayments become difficult

Contact the lender as soon as you think you may miss a payment. Regulated lenders are expected to treat customers in financial difficulty fairly, which may include a temporary reduced payment plan. Free, confidential advice is available from Citizens Advice and through MoneyHelper, and they can help you prioritise essential bills such as rent and council tax over unsecured debts. If you believe a lender lent irresponsibly or treated you unfairly, you can complain to the firm and then to the Financial Ombudsman Service.

Fixed term versus revolving credit

It is worth comparing a small personal loan with a credit card or overdraft before deciding. Revolving credit lets you borrow and repay flexibly, which suits uneven costs, but it has no fixed end date and only the minimum payment is required, so a balance can linger for years. A personal loan forces the debt to be cleared by a set date. If you know exactly what a repair or purchase will cost and want a clear finish line, the loan structure is often the more disciplined choice, provided the rate is competitive.

Checklist before you sign

• The cost is one-off and essential, not a regular bill.
• The monthly repayment fits your budget even in a lean month.
• You have compared at least two offers by total amount repayable.
• The lender is on the FCA Register under the same name and web address.
• You have checked whether a credit union, payment plan or benefit advance would be cheaper.