Unsecured Personal Loans

Unsecured loans are probably the most common form of borrowing. There are many different types of unsecured loans, and this page deals with the most common types available. Credit cards are also actually a form of unsecured borrowing but they are dealt with on a separate page.

Secured Loans	Debt Consolidation Loans
Self Employed Loans	Bad Credit Loans

How does an unsecured loan work?

Loans are a lump sum of money loaned to a ‘borrower’ by a ‘lender’ and repaid over a fixed number of months. Most lenders charge ‘interest’ which increases the amount of money that needs to be paid back. This is how lenders make money by lending money.

Interest is usually calculated based on a fixed percentage rate then added to the loan amount to work out how much the monthly ‘repayments’ will be.

Use the ‘loan calculator’ on the left of this page to work out monthly repayments.

Unsecured loans are available from banks or building societies who will require some form of application. The application is used to make an assessment of whether to lend the money and is also a formal agreement. The agreement should set out the amount of the loan, amount and frequency of repayments and length of time or ‘term’ of the loan.

What interest rate will be charged on an unsecured loan?

Lenders will charge an interest rate that reflects what they consider to be suitable for the risk that they are taking. Interest is generally higher than a mortgage or equivalent secured loan as there is more risk that the money lent will not be repaid.

Who should you approach for an unsecured loan?

One approach is to ask at the bank that you hold your current account with. They will have a record of how you conduct your financial affairs. However there are many lenders that offer unsecured loans who may offer lower interest rates. It is always worth looking around for the best interest rate when considering an unsecured loan as it will make a difference to the amount you have to repay each month.

It should be noted that each lender will have its own criteria for assessing whether to lend money. This will usually include performing a credit reference check. The better your credit rating is, the lower the interest rate charged is likely to be. Each lender will have its own lending criteria to determine the interest rate to be charged on each loan.

Tip

Every time you apply for a loan, it is likely that the lender will perform a credit check. Each time a check is made, this recorded on your credit record. Repeated applications for credit can reduce your credit score and make credit more difficult to obtain.

Can I have more than one loan at a time?

The simple answer is yes. Provided you have sufficient income, disposable income and a satisfactory credit score you can have several loans however not all lenders check affordability so it is easy to be overwhelmed. Make sure that you can afford the repayments before taking out a loan or you could find yourself in financial difficulty.

Can I repay a loan early?

The simple answer is yes. The early repayment of an unsecured loan may incur early repayment penalties so check the terms and conditions carefully when considering paying off a loan early.

I have seen Pay-Day loans advertised, what are they?

A Pay-Day loan is a form of short term unsecured. The lender will lend a small amount of money for a short period of time that is repaid on the day that you are paid by your employer. The interest rate is significantly higher than that of an unsecured loan and there are additional fixed fees which can make them an expensive form of short term borrowing.

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