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Personal loan debt. How to deal with it.

When you take out a personal loan, you borrow a fixed amount from a bank or creditor. You repay in fixed amounts over an agreed number of months or years.

You need to know:


  • How much you need to pay back each month, and
  • How long you need to make the payments for

'Interest' is charged on most loans.  Interest is a charge for taking out the loan. The rate is usually listed as a percentage, such as 5% (or five in every hundred). The rate of interest will depend on a number of factors, including:


  • The amount of money you are borrowing
  • The term of the loan
  • Your credit rating

Most personal loans are unsecured. This means the loan is not secured against your home.

But secured loans carry a higher risk. Your home may be repossessed if you miss payments.

Dealing with personal loan debt

If you are finding it hard to pay your loan or have arrears, you should speak to your lender to see what help you can get. They may be able to:


  • Agree to let you catch up with any arrears, or
  • Offer a payment break

This depends on the lender and your agreement.

signpost iconAre you looking for information about guarantor loans? This is when someone else, such as a family member or friend, agrees to repay the loan if you cannot afford it.

If you do not pay your loan arrears:


  1. You will be sent a default notice. This gives you a chance to catch up with your missed payments.
  2. If you do not take steps to deal with the debt, the loan will default, usually after two or three missed payments
  3. Once the account has defaulted, the people you owe can take action to get you to pay them back.

Action that can be taken against you includes:


You should take steps to deal with the arrears to stop your situation getting worse. You may feel under pressure to make payments you cannot afford, or be worried about the action creditors can take. We can help you deal with it.

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What should I consider when taking out a loan?

If you are thinking about taking out a personal loan you should make sure you know what type of agreement you are entering into. Some of the main things you should always look out for are:

The interest rate of the loan

Loans often have an advertised interest rate or APR. The rate you will get depends on:


  • The type of loan
  • The duration of the loan, and
  • Your credit rating

You might not always get the interest rate advertised. Be sure to check this once you have applied.

Some personal loans have interest rates that vary. There is a risk that this could become hard for you to afford. Try to find a loan with fixed rates instead.

The term of the loan

If you take out a loan over a longer period of time you may find that the payments seem lower. But you pay interest for the whole time you owe the money, you will end up paying more.

Taking a loan out over 10 years might lower the monthly payments. But, before agreeing to the loan you should ask yourself if you still want to be paying the loan back in 10 years' time.

Compare loans and consider your alternatives

Always compare lenders to make sure you are getting the best deal on a loan. Do not accept the first loan you are offered. You can use comparison websites to help you do this.

Credit unions can be a more affordable alternative to banks, or expensive payday loans. They sometimes offer loan rates that are cheaper and they may be more willing to help people:


  • On a low income
  • Who have poor credit, or
  • Who do not have a previous record of borrowing

Many people take out personal loans to consolidate their debts. To find out whether this is right for you, use our debt consolidation calculator.

Do I need a loan?

Most importantly you should work out whether you actually need a loan. Some people take out a loan to pay for high cost items, such as a car, holiday, wedding or to consolidate their debts.

Loans can be tempting to help you get what you want more quickly. But you should always think about:


  • Whether you need it
  • If you could save up and budget carefully for the item instead.

We can help if you have personal loan debt

If you are finding it hard to pay your loan, or any type of debt, we can help you. Use our online debt advice tool to get debt advice that is tailored to your situation.