Best ways to borrow £10,000

·5-min read
 (Pexels)
(Pexels)

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, a personal loan will 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 you do not pay the money back.

You can typically borrow between £1,000 and £25,000 with a personal loan, with interest rates at their most competitive on borrowing amounts of between £7,500 and £15,000. So for anyone looking to borrow £10,000, a personal loan is a sensible place to start.

Repayment terms are typically between one and five years, although it is possible to borrow for up to seven years. 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?

Pros

  • Low interest rates on larger borrowing

  • Fixed monthly payments, making it easier to budget

  • Can often borrow more than with a credit card or overdraft

  • Cash paid into your bank account as early as the next day

Cons

  • Good credit rating required to secure the best rates (advertised annual percentage rates or ‘APRs’ must only be offered to 51% of borrowers, so 49% could be offered higher)

  • Repayments are not flexible, so you’ll need to check you can afford to make your payment each month

  • May be an early repayment charge to redeem loan early – often the equivalent of one to two months’ interest.

What is a secured loan?

Secured loans typically offer lower rates of interest compared to unsecured loans. This is because they require you to secure the amount borrowed against an asset – typically your home. For this reason, it can be easier to be accepted for a secured loan, which is why they might appeal to anyone with a poor credit rating.

However, 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 or, better still, avoided completely.

What should I consider when applying for a £10,000 loan?

Before borrowing a major sum like £10,000, 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

  • What are the implications of missing a payment? On your credit rating as well as one-off lender charges

  • Are you able to overpay and what are the charges for repaying the loan off early?

Applying for a personal loan also presents a good opportunity to check your credit score. You can do this with a credit reference agency such as Experian, Equifax or TransUnion.

If it’s not up to scratch, it’s worth taking steps to improve it such as adding yourself onto the electoral roll and correcting any mistakes or out-of-date information.

When you’re ready to apply for a loan, the best ways to sift out the best deals is to use an online comparison service. Always use an eligibility checker where one is available.

This will run a ‘soft’ search on your credit file to estimate how likely you are to be accepted for a particular loan before you actually apply. Soft searches do not leave a mark on your credit file for other lenders to see, which protects your future chances of getting access to credit.

What are the alternatives?

But there are other alternatives to explore outside of personal loans, too.

0% purchase card: By borrow the £10,000 on a 0% purchase credit card, you will be able to spread your repayments over a number of months interest-free. 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 as representative APRs can hover around 19% (variable).

That said, for many applicants, a £10,000 credit limit will be out of reach. Instead, you may have to split the £10,000 you want to borrow across more than one credit card. Or, if you have savings, borrow as much as you can on a 0% 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 history of repaying debts on time.

0% money transfer card: Another option is a 0% money transfer credit card. This 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, high rates of 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.

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