If you’re looking to borrow a sum of £10,000, whether that’s to help fund a wedding, new car or home improvements, there are a number of options to consider. But for many people, a loan will likely be the most appropriate choice.
Here’s everything you need to know.
Taking out a £10,000 loan
A personal loan allows you to borrow a fixed sum of money over a fixed term. It might also be referred to as an ‘unsecured’ loan, because it is not secured against an asset, such as your property or car, in the event of a default.
You can typically borrow between £1,000 and £25,000 with a personal loan, and interest rates are usually the most competitive on borrowing amounts of £7,500 and above. This makes it a good option for anyone looking to borrow £10,000.
Repayment terms are typically between one and five years, although it is possible to borrow for seven years or more. The longer your repayment term, the lower your monthly repayments will be, although the trade-off is that you’ll usually end up paying back more overall in interest.
What are the pros and cons of a personal loan?
Useful for funding one-off big-ticket items such as a new car or renovations
Interest rates can be competitive
Monthly payments are usually fixed, making it easier to budget
You can usually borrow more than you’d be able to with a credit card or overdraft
You’ll need a good credit rating to secure the most favourable rates. Loan providers must offer the advertised annual percentage rate (APR) on the products to at least 51% of borrowers, but this means 49% could be offered a higher rate
Payments are not flexible, so you’ll need to check you can afford to make your payment each month
Should you wish to pay off your loan early, you may have to pay an early repayment charge – often the equivalent of one to two months’ interest
You may have to pay an arrangement fee to get the loan in the first place
What about a secured loan?
Secured loans typically offer lower rates of interest compared to unsecured loans. This is simply because they require you to secure the amount borrowed against an asset – typically your home.
For this reason, they are usually easier to get accepted for than unsecured loans, making them an option worth considering if you have a poor credit rating.
But the huge drawback is that should you be unable to keep up with your loan repayments, you could be forced to sell your home to pay back what you owe. This means that secured loans are a far riskier option than unsecured loans and should always be considered with care.
They also often have longer repayment terms, usually between three and 25 years.
What should I consider before taking out a £10,000 loan?
Before being lent such a sum, it’s important to weigh up your options carefully and consider the following:
How much do you realistically need to borrow, and will you be able to afford your monthly repayments?
How long do you need to borrow for? Always aim to pay your loan back within the shortest amount of time possible
Are there any fees for arranging your loan?
Will you be charged if you miss a payment?
Is the interest rate fixed or variable?
It is also wise to use an online service to check your credit score before you apply for a loan. If it’s not up to scratch, it’s worth taking steps to improve it such as checking you’re on the electoral roll, correcting mistakes on your credit report and paying bills on time.
When you’re ready to apply for a loan, the quickest way to sift out the best deals is to use an online comparison service.
You may also be given the option of using an eligibility checker which will run a ‘soft’ search on your credit file to estimate how likely you are to be accepted for a particular loan. Soft searches do not leave a mark on your credit file for other lenders to see.
What other options are available?
One alternative to a £10,000 loan is to borrow on a 0% purchase credit card or 0% money transfer card. But the reality is, for many applicants, credit limits of this amount won’t be offered.
Instead, you may have to split the £10,000 you want to borrow across more than one card. Or, if you have savings, borrow as much as you can on a credit card and use some of your own cash to top up the remainder.
Your chances of getting a higher credit limit will increase if you have an excellent credit score and a demonstrated history of repaying debts on time.
0% purchase card: If you are able to use a credit card, a 0% purchase credit card will enable you to spread your spending over a number of months interest-free. Similar to a loan, this can be a good option if you have a one-off purchase to make, such as a new car.
However, you’ll need to calculate how much you should repay each month to clear your balance before the 0% deal ends and interest kicks in.
0% money transfer card: Another option is a 0% money transfer credit card which will allow you to move a lump sum from your credit card into your current account. You can then use these funds however you wish. You will usually need to pay a transfer fee (often in the region of 4%) and once the 0% deal ends, interest will be charged.
Be aware too that the amount you can transfer will usually be around 90% to 95% of your overall credit limit so be sure to check first – it may not be sufficient for your requirements. You will also need to carry out your transfer within 60 or 90 days of opening your account to qualify for the 0% offer.