Guide to Unsecured Loans
An unsecured loan, often referred to as a personal loan, is provided by a lender based on their assessment of your ability to repay the loan.
It is called ‘unsecured’ as it is not secured against your home or property. This makes them popular with people who are not homeowners.
Key Features of an Unsecured Loan
- Loans are usually small amounts of money borrowed over a shorter period They are generally at their cheapest when you are looking to borrow anything from £1,000 to £25,000.
- They are relatively easy to get, many involve online applications, no references and decisions given in a matter of minutes
- Once the application is approved, some lenders claim they will have the money in your account within minutes
- Flexible repayment options available, some lenders will allow you to spread the payments out, so payment looks very easy
- Some lenders even offer payment holidays, where you can forego a payment
- No requirement to secure the loan against your home or property
- You often have the option to repay your loan early, with no financial penalty
What's the Disadvantages?
Whilst unsecured loans are popular, as there is no worry that failure to repay will affect your home, there are important things to bear in mind. They do have disadvantages, including:
- If you do not repay the loan your credit history will be badly affected, limiting your ability to get future credit.
- If you want to borrow over a short period the interest rate is often high
- Interest rates are often expensive
- It is not best to take an unsecured loan if you already have a lot of existing debts as you can easily get into difficulty.
- An unsecured loan won’t help you if you need a large amount of money.
- Unsecured loans can be hard to find if you have a poor credit history.
If you are looking to borrow a small amount of money you may well want to consider other options. For example if you wanted to borrow a small amount of money then a 0% purchase credit card could be a better option.
It is also good advice to really shop around so that you get a good deal. And finally, do check out all the fees and interest rates involved so that you are completely aware of what you are borrowing and what the final amount is that you have to repay on the loan.