How Much Do Loans Cost in the UK? 2026 Guide

The cost of borrowing in the UK varies wildly depending on the loan type, your credit score, and the lender you choose. A personal loan might cost you anywhere from £50 to £500+ per month on a £5,000 advance, while a secured loan against your home could be cheaper overall but carries far greater risk. This guide breaks down actual 2026 UK loan costs across all major lending types, shows you what APR really means in pounds and pence, and explains where people routinely overpay.

What Is APR and How Does It Affect Your Loan Cost?

APR stands for Annual Percentage Rate. It's the single most important figure when comparing loan costs because it includes not just the interest rate but also most lender fees rolled into one annual percentage. The catch is that APR can be misleading if you don't understand what you're comparing.

In the UK, lenders must show a "representative APR" in advertising, but this is only available to 51% of successful applicants. Your actual rate could be higher. For example, Sainsbury's Bank advertises personal loans from 5.9% APR, but new borrowers with fair credit might qualify for 11.9% or higher depending on affordability checks.

Here's how APR translates into actual cost. Take a £5,000 personal loan over 36 months:

• At 5% APR: you'll pay around £131 monthly, totalling £5,716 (£716 in interest and fees)
• At 10% APR: you'll pay around £161 monthly, totalling £6,796 (£1,796 in charges)
• At 20% APR: you'll pay around £202 monthly, totalling £7,872 (£2,872 in charges)

A 15-point difference in rate can cost you over £2,000 more on a modest loan. Always ask for your personal APR, not the representative rate advertised.

Personal Loan Costs: What You'll Actually Pay in 2026

Personal loans are unsecured borrowing—the lender has no claim on your assets if you can't repay. This makes them riskier for the bank, so costs are higher than secured loans but cheaper than credit cards or payday loans.

In 2026, typical personal loan APRs in the UK range from 4.9% to 49.9%, with most borrowers paying between 6% and 15%. Your rate depends almost entirely on your credit score and income.

Credit Score Brackets and Real APR Costs

• Excellent credit (Equifax 465+): 4.9%–7.9% APR. A £10,000 loan over 5 years costs £10,500–£11,200 total.
• Good credit (Equifax 420–464): 8%–12% APR. Same £10,000 loan costs £11,500–£13,000 total.
• Fair credit (Equifax 380–419): 12%–20% APR. You'll pay £13,000–£15,800 for that £10,000.
• Poor credit (Equifax below 380): 20%–49.9% APR, or rejected. £10,000 costs £15,800–£25,000.

Major UK lenders and their 2026 starting rates (representative APR):

• Sainsbury's Bank: 5.9%–11.9% (up to £35,000)
• Nationwide Building Society: 3.9%–10.9% (up to £15,000)
• Barclays: 5.9%–19.9% (up to £35,000)
• HSBC: 5.9%–15.9% (up to £50,000)
• Tesco Bank: 7.8%–16.8% (up to £15,000)
• Everyday Loans (direct lender to poor credit): 19.9%–39.9%

Don't ignore the loan term. Spreading a £5,000 loan over 60 months instead of 36 cuts your monthly payment from £161 (at 10% APR) to £105—but you'll pay £1,300 total interest instead of £796. Aim for the shortest term you can afford.

Secured Loan Costs: Lower Rates, Serious Risk

A secured loan uses your home (or other asset) as collateral. If you miss payments, the lender can force you to sell. This is why secured loan costs are typically 3–8 percentage points lower than personal loans for the same borrower.

Secured loan APRs currently range from 3.5% to 15% for homeowners with decent credit. On a £15,000 loan over 5 years, you might pay £16,300 instead of £18,000 with an unsecured loan—a saving of around £1,700.

Who Should Consider Secured Loans?

Secured loans make sense only if you're borrowing a large amount (£10,000+) and can afford the monthly payments reliably. They're popular for home improvements, debt consolidation, and business use. But they carry real danger: in 2024–2025, around 40,000 UK households faced repossession action, many triggered by missed loan payments.

Never take a secured loan to fund short-term spending like holidays or cars. The long-term cost of losing your home far outweighs any interest saving.

Short-Term and High-Cost Lending: The Expensive Alternative

If you need cash urgently and can't access personal loans, the UK offers several high-cost alternatives—all significantly more expensive than standard borrowing.

Payday Loans

Payday loans carry a legal cap of 0.8% daily interest, but most charge near the maximum. A £300 loan over 30 days costs roughly £72 in interest (24% APR equivalent), due in full when you're paid. The FCA reported in 2024 that payday loans cost borrowers £72 million in charges annually, with repeat borrowers paying far more than first-time users.

Buy Now Pay Later (BNPL)

BNPL services like Klarna, Clearpay, and Afterpay charge no interest if you pay on time, but late fees are steep: typically £6–£35 per missed payment. For interest-free credit, they're useful, but miss a payment and you'll pay more than a personal loan would have cost.

Credit Card Purchases

Standard credit card APR ranges from 14% to 29.9% in 2026. A £2,000 purchase on a 0% balance transfer card is interest-free for 12–21 months, but the balance transfer fee (2.5%–5%) costs £50–£100 upfront. After the 0% period ends, interest jumps to the standard rate.

Guarantor Loans

If you have poor credit but a friend or family member with good credit will co-sign, guarantor loans cost 19.9%–39.9% APR. You're responsible for repayment, but if you can't pay, your guarantor must. This has strained many relationships—proceed with extreme caution.

Hidden Costs: Fees, Penalties, and Charges

The advertised APR doesn't always capture every cost. Here's what to ask about before borrowing:

Arrangement Fees

Most lenders charge an upfront arrangement fee, typically 1–6% of the loan amount. A £10,000 loan with a 3% arrangement fee costs you £300 immediately—though this is usually added to the loan balance and included in your APR calculation.

Early Repayment Penalties

Some lenders, typically those targeting poor-credit borrowers, charge early settlement fees of 1–2 months' interest if you overpay. Nationwide and Sainsbury's don't charge these; Everyday Loans charges none. Always check this clause: if you inherit money or get a bonus and want to clear the debt, you shouldn't be penalised.

Late Payment Charges

Miss a payment and you'll face a fee (usually £15–£25) plus interest on the overdue amount. Repeat missed payments trigger default charges and damage to your credit file lasting up to six years.

Payment Protection Insurance (PPI)

Some lenders offer PPI that covers payments if you lose your job or become ill. Avoid it. The FCA has ruled it poor value for money; you'll pay 10–15% extra in loan cost for cover that rarely pays out. If you want protection, buy standalone income protection insurance instead, which is much cheaper.

What Affects Your Loan Cost: The Real Factors

Your personal circumstances determine what you'll pay far more than any "average" figure:

Credit Score

Your credit file is the primary driver. Check your Equifax, Experian, or TransUnion score (all three providers are used by different lenders). A difference of 50 points can swing your APR by 5 percentage points—a saving or cost of thousands of pounds over the loan term.

Income and Debt-to-Income Ratio

Lenders calculate how much of your monthly income goes to existing debt. If you earn £2,000 monthly and already pay £800 in mortgage and credit card repayments, you have limited affordability for a new loan. Debt-to-income ratio caps mean some borrowers simply can't access credit at any price.

Loan Amount and Term

Smaller loans (under £3,000) are sometimes harder to get than larger ones because the lender's profit margin is thin. Longer terms lower monthly payments but increase total interest paid. A £8,000 loan over 24 months costs less total interest than the same loan over 60 months, even though your monthly payment is higher.

Employment Status

Self-employed borrowers typically pay 1–3% more APR than employed borrowers because income is seen as less stable. Lenders also scrutinise accounts going back 2–3 years. If you've been self-employed for less than a year, expect rejection or rates in the 15%+ bracket.

Age and Electoral Register

Those under 25 pay a premium (higher risk to lenders). Not being on the electoral register triggers extra checks and may exclude you from mainstream lenders. Register at your current address—it costs nothing and takes 5 minutes online.

How to Cut the Cost of Your Loan

You can't change your credit score overnight, but you can reduce what you'll pay:

• Shop around. Apply to 3–5 lenders within a two-week window. Multiple applications in two weeks count as one search on your credit file; applying to 20 lenders in a month damages your score. QuoteBank and MoneySuperMarket show indicative rates without affecting your credit.
• Improve your credit file first. If you have County Court Judgements (CCJs) or defaulted accounts, pay them off before applying. Even a 30-point improvement in score can save you £500+ on a large loan.
• Borrow less and over a shorter term. A £6,000 loan over 36 months is almost always cheaper than a £8,000 loan over 48 months, even if monthly payments are higher.
• Use a credit union if you're eligible. Credit unions are non-profit lenders serving specific groups (postcodes, employers, professions). APRs are capped at 42.6% and are often 8–12% for those with good payment history. Credit unions don't always do hard credit checks.
• Ask about discounts for account holders. Existing bank customers sometimes get 0.5–1% off personal loan rates. Worth a conversation with your current bank.
• Consider debt consolidation only if it genuinely saves money. Rolling multiple debts into one loan is tempting, but if it extends your repayment term, you'll pay more interest overall, not less.

Regional Variations: London vs. the Rest of the UK

Loan costs are nationally set by lenders, so a Manchester borrower and a London borrower with identical credit scores pay identical APRs. However, affordability checks differ: lenders are stricter in high-cost-of-living areas (London, South East) because rental and housing costs eat more of your income.

A borrower in London paying £1,200 monthly rent might struggle to get a £300 monthly loan approved, while an identical borrower in a rural area paying £500 rent gets approval easily. This happens not because of credit score, but because of regional affordability models.

Frequently Asked Questions

How much should I expect to pay for a £5,000 personal loan in 2026?

On a £5,000 loan over 36 months, you'll pay between £5,600 and £7,500 depending on your APR. At 8% APR (good credit), you'll pay around £5,900 total. At 15% APR (fair credit), you'll pay around £6,800 total. Request a personal quotation from your chosen lender for an exact figure.

What's the cheapest type of loan available in the UK?

Secured loans against a home typically cost 3–8 percentage points less than personal loans, and mortgages cost even less (currently 4–5% for new borrowers). However, secured loans carry repossession risk. For unsecured borrowing, credit union loans (if you're eligible) are often the cheapest at 8–12% APR, significantly lower than mainstream lenders.

Can I reduce my loan APR after I've borrowed?

Not typically. Your rate is fixed for the loan term. However, if your credit score improves significantly (50+ point jump), you can overpay and refinance with a new lender at a lower rate—provided you don't face early settlement penalties. Check your original agreement before attempting this.

What happens if I miss a loan payment?

You'll face a late fee (usually £15–£25), interest on the overdue amount, and potential damage to your credit file. Missing multiple payments triggers default status, which stays on your credit report for six years and makes future borrowing much harder or impossible. Contact your lender immediately if you can't pay—many offer payment holidays or temporary reductions.

Is it worth paying for payment protection insurance (PPI) with my loan?

No. The FCA has ruled PPI poor value for money; you'll pay 10–15% extra in loan cost for cover that rarely pays out. If you want protection, buy standalone income protection insurance instead, which is much cheaper.