A loan is a big commitment, so it’s useful to know your options and which type of loan suits your needs best. There are two ways of borrowing money as a loan:
- An unsecured loan
- A secured loan
What is an unsecured loan?
It’s a type of credit that you pay back with interest over an agreed period of time. Because it’s an unsecured form of borrowing, you don’t have to provide an asset, such as your house, as collateral.
You can borrow up to €75,000 and payback the loan over a period of up to 10 years, although this type of loan is usually for smaller amounts over a shorter term.
The monthly repayment and interest rate are fixed at the start of the loan.
Types of unsecured loan
There are many types of unsecured loan, but they all work on a similar basis with a fixed-term repayment period and monthly payments based on a set rate of interest.
- Personal loan: money you can use for any purpose, typically between €1,000 and €25,000.
- Home improvement loan: for work on your home, such as building an extension or fitting a kitchen.
- Car loan: to finance a car purchase as an alternative to Hire Purchase or a Personal Contract Plan (PCP).
- Debt consolidation on Personal loans: a facility to pay of all existing debts with one loan so repayment is simpler.
- Guarantor loan: for people with poor credit history. A guarantor undertakes to make payments for you if you default.
- Credit Union loan: low-cost borrowing for credit union members based in the community or workplace.
- Moneylenders’ loan: a short term, high-interest loan from a regulated lender other than a bank, building society or credit union.
What is a secured loan?
It’s money borrowed against an asset, such as your home or a property with equity.
Secured loans are often taken out for larger sums of money and borrowing over a longer period. Interest rates can be fixed, variable or a combination of both.
If you have equity in your home, it may be easier to get approval for a secured loan, however, your home is at risk if you fail to make repayments.
Where to get a loan
You can get a loan from a bank, building society or finance company. We compare Ireland’s eight main lenders on our loans comparison page. These lenders are:
- An Post Money
- Avant Money
- Bank of Ireland
- Chill Money
- Permanent TSB
- Ulster Bank
You can also apply for a loan online with other money lenders, but always check they are regulated by the Central Bank of Ireland.
If you are a member of a credit union, you can apply for a loan with your local union, even if you are a low earner or getting social welfare payments.
What can you use a loan for?
How you spend your loan is up to you, but popular reasons for getting one are:
- Buying a car
- Paying for a holiday
- Making home improvements
- Covering wedding costs
- Consolidating debts
How loans work
Banks, building societies and credit unions charge for lending money. This means you pay more money back than you borrow. This charge is called interest.
The interest you pay is calculated on the amount of money borrowed and the length of time it’s borrowed for. There may also be extra fees to cover administration costs and late or missed payments.
Loans are repaid in fixed monthly instalments over an agreed period of time. This can be up to 10 years for personal loans, but most people take a loan for between three and five years.
Secured loans can be repaid over a period of up to 30 years.
How much do loans cost?
The cost of borrowing depends on three factors:
- How much you want to borrow
- The time you need to repay the loan
- The interest rate set by the lender
Your credit history and income will affect the interest rate set by the lender and the final repayment cost.
How lenders decide what interest rate you pay
Banks and lenders use your credit history to work out how much risk they are taking by lending you money. Your chance of approval and rate of interest will depend on your credit rating and repayment capacity.
If you have missed or made late payments on a loan, credit card or mobile phone bills in the past, you may have a poor credit rating.
- Low credit score: If you have a bad credit history or no credit history at all, you are considered high risk and the interest rate offered will be higher, which means you’ll pay more for your loan.
- High credit score: If you have a good credit score because you have been a reliable borrower historically and haven’t defaulted on payments you will get a lower interest rate on your loan. This will make your loan cheaper.
- Financial status: Lenders also look at your income and employment status to assess your repayment capacity. If you have a regular, good income, the interest rate offered will be lower than if you have a sporadic or low income.
Visit our guide, How to check your credit record, to find out more about how credit rating works and what you can do to improve your credit score.
Using a loan calculator
If you want a more accurate idea of how much a personal or home improvement loan will cost you, use our quick loan calculator to find how much the loan will cost with each lender.
Our loan comparison tool can help you weigh up costs and choose a lender. We show the typical annual percentage rate (APR) so the interest rate you’re ultimately offered by the lender may differ.
Here’s a quick guide to the features you’ll need to compare:
|Typical APR||The interest rate given to the majority of customers, including lender fees and charges|
|Interest rate||The headline rate of interest not including fees & charges|
|Total repayment||The overall cost of the loan at the end of the repayment period|
|Monthly repayment||The amount you’ll repay each month|
How to qualify for a loan
To be eligible for a loan in Ireland, you need to:
- Be over 18 years of age
- Be a resident of the Republic of Ireland
- Provide proof of your address
- Provide proof of your income
- Pass a credit check to the lender’s requirement
How long does it take to get a loan?
Straightforward, unsecured loans can be approved on the day of application and the money may be transferred into your bank the same day.
This is subject to several conditions, such as applying on a weekday between 9 am and 5 pm and having a good credit rating. Some lenders will charge a fee for same-day transfer of funds.
Secured loans and loans for restructuring debt, high value or bad credit loans will take longer. Most lenders will indicate the length of time it takes to approve and process their loans on their website.
Can you get a loan with bad credit?
Yes, you can, but you will likely pay higher interest and the loan will be more expensive.
You may find that banks are more reluctant to lend to people with bad credit, but there are many specialist lenders who may be able to help.
A good first step to getting an unsecured loan with bad credit is to check your credit score and work on repairing it so you can get better credit facilities in future.
It can be helpful to use a broker to find the best loan for bad credit so that individual credit checks don’t harm your score further.
Will a loan hurt my credit score?
No, an unsecured loan will not adversely affect your credit rating if you make your payments on time and don’t miss any.
In fact, a personal loan will help you to build your credit score and get credit in the future if you can prove you are a reliable borrower with regular, on-time payments.
Should you take out a loan?
If you need extra money to pay for a large purchase or event, a loan is worth considering if you are confident you have the financial means to pay it back.
Consider these things before taking on a loan:
- Can you use cash or savings you already have? Always use the money you own first before borrowing more.
- Can you afford to pay it back? Don’t borrow money if you are already struggling financially because you may harm your credit score further.
- Is your job and income secure for the foreseeable future? A loan is a long term commitment, so you need to be confident you can keep up repayments for the loan term.
- Is a loan the cheapest borrowing option for you? Depending on your circumstances, using a 0% purchase card may be a cheaper option for small amounts of borrowing.
If you decide to go ahead and take out a loan, make sure you are borrowing from an authorised lender. The Central Bank of Ireland regulates the industry and protects you from bogus lenders.
You can check if a lender is authorised on the Central Bank’s register.
Can students get loans?
Yes, some banks, such as the Bank of Ireland and Allied Irish Bank offer low cost loans to students. They are also known as Education loans.
Students can borrow between €600 and €75,000 and may need a parent or guardian to guarantee the loan. The payment term is normally between one and seven years.
The Irish League of Credit Unions of Ireland provides Student Contribution Loans.
How much can I borrow?
This depends on two things:
- The type of loan you take out
- Your loan repayment capacity and financial status
It’s possible to borrow up to €250,000 with a secured loan, subject to your equity and terms and conditions.
The maximum you can borrow with an unsecured loan is £75,000 for a joint application but people usually take out a personal loan for smaller amounts.
What does APR mean?
APR is short for Annual Percentage Rate. It’s a calculation of the overall cost of your loan and takes into account all the costs during the term of the loan including set up charges and the interest rate. Any extra fees are added to the loan amount before interest is calculated.
It’s a legal requirement for credit lenders to show their interest rate on borrowing so an easy and fair comparison of interest rates can be made between finance companies like banks and lenders.
What is a broker?
A broker acts as a link between yourself and the lender. They will provide financial advice and use a panel of lenders to find the best loans available based on your circumstances.
What is the easiest loan to get approved for?
If you have a good credit rating and can demonstrate repayment capacity, then you will likely find it easy to get approval for most loans.
However, if you have a poor credit rating or a low, irregular income you will find it harder to get approval from mainstream lenders.
If this is the case, the easiest way to get a loan is to find a broker specialising in bad credit loans and they will advise you of the best options available.
If you are a member of a credit union and on social welfare, they may be able to help you get an ‘It Makes Sense’ loan up to €2,000.