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What is an Unsecured Loan?

Unsecured loans known also as unsecured personal loans are a form of borrowing that is agreed, usually through a contract between you and the lender. As with all forms of borrowing, you borrow the money on the basis that you pay it back within the time frame specified and agreed to.

There are lots of unsecured loan products in the marketplace, each with their own terms and rates which you need to take into account when you apply for this kind of borrowing.

Unsecured loans are a common and very popular way for people to take out finance and limit risk to their assets unlike a secured loan. With our guide, we hope to point out a few different solutions and give you a better understanding of this form of borrowing money.

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Unsecured Loan Quick Guide

Unsecured loans are a great solution for individuals who have a variety of different borrowing circumstances or requirements.

For many, borrowing a good chunk of money is only possible if you have a home as an asset to borrow against, like a secured loan. Remortgaging for a fixed term is also an option, but for those without a home, an unsecured loan is a good borrowing option.

Depending on the loan amounts you borrow, unsecured loans can be a great way to help spread the cost of a project. From home improvements to paying for that nighttime course that will help you on your career ladder.

If you’ve managed to build good credit history, then an unsecured loan is a great solution to take out a loan. One key advantage is that the better your credit history, the better the rate of borrowing (generally).

You get to decide on how much you want to borrow – as long as you make the criteria for borrowing – and how long you want to pay it back.

 Remember, unsecured loans need to be repaid, and in many cases on a monthly basis. Look out for the representative APR on any deal as this will impact total amount to pay back.

 

Whilst your borrowing isn’t based on an asset which can be taken off you or lost, as such is the case with a secured loan an unsecured loan isn’t without risk.

Failure to make a loan repayment or several can result in a myriad of issues. One major concern is how your credit score (found on free credit report apps) can be affected.  A poor credit rating can make future borrowing more expensive or possibly limit significantly what you can borrow in the future as well.

Debt collection agencies can be called in to recoup the monies owed whilst a County Court Judgement (CCJ) can be issued affecting your borrowing status for several years after the matter.

There are lots of alternative borrowing options in the marketplace today. From secured loans which look to use your home as the asset to borrow against to even a variety of credit cards or peer-to-peer lending options which have become more popular in the last few years.

As with an unsecured loan, it’s about understanding how much you want to borrow and what method is going to work best for you and your requirements in the short, medium and long term.

Understanding what your requirements are before you take out a loan is an important step in your financial decision making. There are a few quick tips that you can keep in mind when doing this;

Repayment terms
Basically, what are your monthly repayments, if it is short term or long term and, at what level of interest rate. You will also need to clarify if the interest is fixed or variable as you don’t want to budget for one sum and then see your repayments change over time.

Affordability
This comes under repayment terms but the simple question to ask is, ‘is what I’m going to be borrowing affordable to me in the short/medium/long term?’

Who is the lender?
Do some research as to who the lender is, where they have a registered office and whether they comply with the current financial laws and regulations. A Google search will help you find the information you need.

Making sure you get the correct product and deal is essential before taking out any form of borrowing. Our easy to navigate tool allows you to do that, comparing what is essential for you to make an informed decision.

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