Personal loans
Understanding personal loans
Personal loans let you borrow a fixed amount for major expenses and repay it over a set term, usually three to five years. This page explains how personal loans work, where you can get one, how interest rates and repayments are calculated and what to compare before applying, including costs, flexibility and fees. Use the CCPC Loan comparison tool to find the best deal for your needs.
What you need to know
If you’re thinking about borrowing for a major expense, here’s what to know before you apply. Personal loans typically range from €2,500 to €25,000 and are repaid over a fixed term – usually between three and five years, though longer options may be available.
You can use a personal loan for short-term costs like a holiday or education fees, or for bigger expenses such as buying a car, making home improvements or planning a wedding. While most lenders set a minimum loan amount of €2,500, credit unions may offer smaller loans to their members.
How do personal loans work?
Where to get a personal loan:
Banks, building societies, finance companies, and credit unions all offer personal loans.
How it works:
You apply for a specific loan amount over a set term.
Loan approval and repayments:
If approved, your lender calculates your monthly repayment. You must pay at least this amount to clear the loan within the agreed time frame.
Loan types and rates:
Some banks offer better interest rates for specific purposes, such as home improvements or car loans, compared to general personal loans.
- Under the Central Bank’s Consumer Protection Code, a lender cannot offer you a pre-approved loan.
- When you take out a loan, you may be offered payment protection insurance (PPI), but the cost of this insurance must be quoted separately to your loan repayment. PPI is not compulsory, nor do you need to take out the PPI offered by the lender providing you with the loan.
- With most personal loans, your monthly repayment includes both the interest for that month and a portion of the original loan amount. This means your outstanding balance gradually decreases each month as you repay the loan.
- Banks, building societies and finance houses usually require you to pay back your loan by direct debit or by standing order, so you will need to have a current account in order to set that up.
- Credit unions are more flexible and may allow you to pay by cash, cheque, standing order and in some cases, direct debit.
Always compare interest rates, loan terms and total costs from different lenders, as these can differ widely and have a big impact on what you pay overall. Use the CCPC Loan comparison tool.
How is interest charged on personal loans?
The annual percentage rate (APR) charged by your lender usually ranges from about 9% to 10% for loans above €2,500. Bigger loans usually have a lower APR than smaller ones.
For loans below €2,500, you may find it best to consider an overdraft or a credit union loan. By law, credit unions cannot charge more than 12.68% APR.
Some credit unions also give you an interest rebate at the end of the year. This means you get a refund of part of the interest you have paid.
The interest rate on your loan may be fixed or variable and differs from lender to lender.
- If you have a fixed interest rate, your repayments will be the same each month for the full term of the loan.
- If you have a variable interest rate, your repayments may change.
Compare interest rates from different lenders using our Personal loans money tool.
How flexible are personal loans?
Personal loans are more flexible if your interest rate is variable. This is important because your circumstances can change during the loan term.
You might want to:
- Pay your loan off earlier than planned
- Reduce repayments for a time and extend the term
When you choose a loan, ask your lender whether you can pay more than your set monthly repayment or pay occasional lump sums off your loan. This can help you save on interest and pay off your loan earlier.
Always check if your lender charges any early repayment fees or penalties, as these can affect how much you save by paying off your loan early or making extra payments.
Check if:
- The provider credits your extra payments to your loan account straight away
- There are any additional costs if you pay off your loan early
Fixed-rate loans offer less flexibility if you want to extend the loan term, with the lender’s permission, or you make extra repayments to save on interest. However, fixed-rate loans mean you know exactly what your repayments will be over the term of the loan.
What other fees and charges might apply?
There are no additional fees or charges with credit union loans. With loans from banks or building societies, there may be other fees or charges.
| Fee | Reason |
|---|---|
| Administration, arrangement, or documentation fee | Some lenders charge this fee for setting up your loan. It usually ranges from €0 to €75. |
| Fixed-rate break fee (penalty) | If you have a fixed-rate loan, most lenders charge a fee if you repay the loan early or want to change to a variable rate. |
| Security fee | Your lender may charge this fee if you have used your life insurance policy as security for your loan. If you die, your loan will be repaid from the proceeds of the policy. |
Where can you get a personal loan?
You can apply for a personal loan from:
- A finance company
- A bank
- A building society
You don’t usually need to have an existing account with a bank or building society to apply for a personal loan. Another option is a credit union.
To borrow from a credit union:
- You must become a member first
- Most credit unions require you to have a savings record before you can apply for a loan
How do credit union loans work?
To join a credit union, you must fall within a ‘common bond’. This usually means you must:
- Be living or working in a particular area
- Be employed by a company with a staff credit union
- Be a member of a professional body that runs its own credit union
In some cases, your credit union may allow you to continue your account even if you no longer fall within the ‘common bond’.
Many credit unions include life insurance with their loans. This means your loan is paid off if you die or become permanently disabled.
Some credit unions may ask or encourage you to pay into your savings account while you are paying off your loan. This means that in addition to your weekly or monthly loan repayment, you also put money into your savings. This policy can help you build up savings while repaying your loan.
If you are comparing a bank and credit union loan with identical terms and rates, remember that if your credit union operates this policy, you will be building up savings. Check with your local credit union for their policy, as not all require this.
What does it mean to be a guarantor on a loan?
If someone, maybe a family member, asks you to guarantee a loan for them, you are entering into a contract with the bank. You are agreeing to repay that loan if that person is unable to repay it.
Think carefully before agreeing and consider:
- How long the contract is for
- Whether you would be able to repay the loan
- How much of it you are guaranteeing
- How you can end the contract
- What would happen if you were to die
Under the Central Bank’s Consumer Protection Code, a lender must tell you what your responsibilities are and advise you to take legal advice if you are guaranteeing a loan for someone else. Always make sure you fully understand your responsibilities and seek legal advice before agreeing to act as a guarantor.
