A simples guide

Unsecured personal loans

Loans can be confusing. When you need one it’s often easy to get caught up in all the jargon and fancy lingo and end up committing yourself to something you might not fully understand. That’s why we decided to give you a helping hand and cut through all that gobbledegook and just tell you how things stand. So, here’s our guide to finding the best loan to suit you.

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What is an unsecured personal loan?

First things first – an unsecured personal loan is sometimes just called a personal loan. With these types of loans, you’re borrowing money without having to offer up any assets as security. Put simply, unsecured loans are an agreement made in good faith between you and the lender – they’ve loaned you the money on the basis that you agree to pay it back within the timeframe you’ve promised.

A secured loan on the other hand means that you’re borrowing money using your assets as security – for example, your house. This basically means that if you can’t pay back your loan, the lender can take possession of your asset (in this example, your home). Because the stakes are so high, you’ll usually be able to borrow more money with a secured loan than an unsecured one.

Even though an unsecured loan doesn’t require you to offer any security, the lender still has a legal right to take back their money in some way if you can’t make the repayments. This could mean that the lender arranges a County Court Judgement (CCJ) against you and having a CCJ listed on your credit report is something you really should try to avoid. 

Why choose unsecured loans over a secured one?

An unsecured loan can be a flexible way of getting some money that a credit card alone couldn’t give you, it’s also a good option if you don’t own your own home. Unsecured loans are typically for small-ish amounts, usually between £1,000 - £25,000. Another good feature is that lenders usually set out structured payment plans and in most cases you’ll get to choose over what period you pay back the loan, which could be up to ten years.

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Am I a good candidate for an unsecured loan?

That all depends on you. Because you’re not offering any security in return for the loan, lenders tend to be picky about who they lend money to – after all, they do want it back. You stand more chance of getting an unsecured personal loan if you:

- have a good credit history – lenders want to see that you can manage your money and be confident that they’ll see their loan repaid

- have lived in your home for a while – if you’re settled and not likely to be going anywhere then you appear less risky

- are employed – if you have a job and preferably a secure one then lenders will see that you have a means of paying back the loan

What are the pros of an unsecured loan?

For starters you don’t have to be a home owner and if you’ve got a good credit history then you’re more likely to be able to get a loan with relatively low interest rates. Some lenders will also add bonuses such as payment holidays which can give you some breathing space whilst others give existing customers cashback once the loan has been fully repaid. Unsecured loans are also flexible as you’ll usually be given options of what period you pay it back over.

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What are the cons of an unsecured loan?

It’ll be hard to get an unsecured loan if you have bad credit. Most of the preferential rates will be reserved for people with good or excellent credit reports. That’s not to say you won’t be able to get an unsecured loan if your credit score is less than perfect but it does mean that you’ll face higher levels of interest.

While not strictly a drawback, you’ll need to be eagle eyed when checking details. Lenders may vary the interest rate depending on the amount of money you want to borrow, so you might find that borrowing slightly more than you actually need, will give you a better rate. 

Compare with us and find a loan to suit you

Now that we’ve straightened a few things out and hopefully clarified what an unsecured loan is, you’ll have a better idea of whether it’s right for you. If it is, the good news is that you can start comparing the market to find the best loan for you, we’ll do all the hard work so that all you have to do is start planning how to use the extra cash – dinner’s on you then.

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