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Is a mortgage a personal loan?

Written byTom Hughes
First published8th November 2022
  • Introduction
  • Is a mortgage a personal loan?
  • Is a personal loan considered income?
  • Is an overdraft a personal loan?
  • Is a guarantor required for a personal loan?
  • How can I get a personal loan with poor credit?
  • Conclusion

In 30 seconds…

There are many differences between mortgages and personal loans. Personal loans are typically unsecured and available for relatively small amounts of money, while mortgages are available for much more significant amounts. You can also apply for a personal loan with a guarantor if you have a poor credit score and you’re not required to pay tax on a personal loan as it’s not regarded as a form of income. Ultimately, a personal loan is a great way to borrow money, as it’s a flexible form of credit that can be used for a variety of purposes.


Personal loans have emerged as a viable option for a variety of different types of borrowers. They’re widely available, easy to access, and comparatively affordable. Personal loans are also notably different to other forms of credit and come with their own terms and conditions. So, to help you understand some of the nuances behind personal loans, we answer crucial questions relating to this popular form of credit below.

Is a mortgage a personal loan?

Personal loans and mortgages are not the same. A personal loan is often unsecured, while a mortgage is provided against collateral to enable a borrower to purchase property or land that they otherwise wouldn’t be able to afford.

What’s more, to apply for a mortgage, you are required to offer a deposit or down payment, which is unnecessary for a personal loan. You can typically only use a mortgage to pay for property or land, while personal loans can be used for a broad range of purchases, including home improvements, car finance, and even debt consolidation.

Another key distinction between the two is the amounts you can apply for. Personal loans are available for much smaller amounts – typically between £1,000 and £25,000, while mortgages are available for much more significant amounts. Mortgages also usually come with lower annual interest rates than personal loans, as they’re paid back over a much longer period of time.

Is a personal loan considered income?

Personal loans aren’t taxable as the money you receive is not regarded as income. The key distinction is that you keep your salary and investment earnings, while you need to pay back the money you receive in the form of a personal loan.

As they’re not deemed as a source of income, you’re not legally obliged to declare personal loans on your annual tax return. It doesn’t matter whether you have received a loan from a bank, online lender, credit union, or peer-to-peer lender; you’re not required to declare it as income on your tax return.

Therefore, you can apply for a personal loan to finance expensive purchases without worrying about it having any tax implications at the end of the year. At Koyo Loans, we offer unsecured personal loans of between £1,500 and £15,000, 24.9% APR Representative, that you can use to fund a range of purchases, from home improvements to a summer holiday.

Is an overdraft a personal loan?

An overdraft is a line of credit that you can attach to your bank account to cover unexpected expenses – it’s not the same as a personal loan. You should view an overdraft as a temporary increase to your bank account, and you will be subject to interest payments when you enter the overdraft.

On the other hand, a personal loan is a financial product that you can apply for from a lender, which you repay over a fixed term with interest. Personal loans are available for a range of purposes – to go on holiday, to buy a car, to consolidate debt – while an overdraft should be seen as a “just in case” extension you can dip in and out of, in order to manage your cash flow throughout the month. 

If you’re interested in an overdraft, make sure you arrange one with your bank or building society. Unarranged overdrafts are incredibly expensive and come with high daily interest rates and charges, meaning they’re not a viable form of credit for most borrowers. Ultimately, overdrafts and personal loans can both be helpful lines of credit, but they’re not the same thing.

Is a guarantor required for a personal loan?

In some instances, a guarantor might be required for a personal loan. A guarantor is someone who supports your application and agrees to meet the loan repayments if you default on the loan.

If you have a thin or poor credit history, then applying for a personal loan with a guarantor might be necessary. For most people, the ideal guarantor for a personal loan is a family member or close friend, but you might also find someone at work who is willing to act as your guarantor, depending on your relationships.

However, guarantors are not always required for personal loans. Even if you don’t have a perfect or clear credit history, you might be approved for a personal loan when you apply to an Open Banking lender, such as Koyo Loans. Open Banking lenders like Koyo Loans look at more than just your credit score when considering your loan application. This helps lenders assess applications fairly based on current financial circumstances, as opposed solely to credit history.

How can I get a personal loan with poor credit?

Borrowers with a poor credit history are more likely to struggle to access credit, but it doesn’t mean it’s impossible to successfully receive a loan. Ultimately, you need to do your research and read the terms and conditions stipulated by different lenders.

The three credit bureaus in the UK – TransUnion, Experian, and Equifax – score your credit history in different ways, which makes it difficult to know exactly where you stand as far as your credit rating is concerned. However, you can request a credit report from one of the bureaus to ascertain how your credit history is currently viewed. If you find that you have a poor credit rating, you don’t need to panic.

Open Banking lenders take other aspects of your financial circumstances into account, meaning your credit score isn’t the only consideration. Alternatively, there are loans specifically marketed to people with poor credit scores, but they often come with high-interest rates and fees. So, while it’s not impossible to get a loan with a poor credit history, it does make things a little more difficult.


There are so many different types of credit you can apply for, but personal loans are suitable for a variety of borrowers looking for fast, flexible loans. Hopefully, the above questions have cleared up some of your queries about the accessibility and terms of personal loans. If you’re looking for a personal loan to fund a purchase of between £1,500 and £15,000, use our loan calculator today to learn about how much you can borrow today.

Koyo Loans is the trading name of BETR Technology Ltd. Company No. 11483187. Registered Office: Huckletree Soho, Ingestre Court, Ingestre Place, London, W1f 0JL

Key Takeaways

A personal loan is not the same as a mortgage. Mortgages are used for land and property purchases, while personal loans can be utilised for much broader purposes. Another key difference is that personal loans are available for smaller amounts than mortgages and need to be repaid in a shorter period of time. Provided you’re eligible; there’s no reason why you can’t have a personal loan and mortgage at the same time.

There are also differences between personal loans and overdrafts, but they’re both forms of credit that you can apply for to use in different situations. When you’re applying for a personal loan, the lender will take your credit score in to account. If you have a poor credit history, you will struggle to access a loan and might need to appoint someone as a guarantor.

Personal loans are a viable form of credit for anyone looking to borrow up to £25,000 for a range of purposes. On the other hand, mortgages are suitable for anyone looking to enter the property market, so you need to weigh up your motivations for applying for credit before settling on the right option for you.

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