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From time to time, we all require some extra cash. Home repairs pop up unexpectedly or you suddenly find your car in the shop. Therefore, an unsecured loan can be a worthwhile option for many borrowers.
Here is some important information to know before submitting your loan application.
Unsecured loans are a type of personal loans. They differ from secured loans in a few ways. Secured loans require the borrower to link debt to their property, for instance a house or car. In case you default on your secured loan - meaning you fail to pay back what you owe, the bank or lender can make claim on your property or asset.
Unsecured loans are available based on a borrower’s credit score and financial situation, and you don't need to provide any security. So, a personal loan is a lot safer option than a secured one, but of course, it comes with a higher interest rate and lower available loan amounts. You can usually borrow between £1,000 and £25,000. Secured loans are usually available for more depending on the borrower’s circumstances (e.g. the value of the property the loan is secured with).
There are many reasons why someone might need an unsecured personal loan. This type of loan can be useful for financing major purchases or consolidating debt.
Some common reasons for applying for an unsecured loan include:
It can seem tempting to take out a personal loan for things like vacations or electronics with a high price tag. This is not recommended. Unnecessary debt can strain your finances and damage your financial health.
If you want to buy luxury items or experiences, it is typically best to save up beforehand. Unsecured loans are recommended for emergencies. Or other unavoidable financial needs, including debt consolidation loans.
Unsecured loans offer several advantages for borrowers in comparison to other types of loans.
As with most loans, there are some disadvantages to borrowing money through an unsecured loan.
There are a variety of lenders that offer unsecured loans. However, it is important to do your research when shopping for an unsecured loan. Different lenders may offer different personal loan terms and interest rate.
You can typically apply for an unsecured loan through online resources or over the phone. Also, If you prefer in-person service, a traditional bank or credit union also offers unsecured loans.
Follow these steps to apply for an unsecured loan:
To qualify for a personal.loan, you usually need to check a few boxes. For instance, you need a regular income, best coming from employment. You need an address, and you need to show that your income is higher than your spending - in other words, that you are able to afford to take out a loan and pay back the money you owe in regular instalments. When applying online, you need to have a bank account where the personal loan can be paid into.
You don't need to be a homeowner to qualify for a personal loan, but it's worth mentioning since it can really help your chances. Same goes for a good credit score. Some lenders might ask about your credit history, but don't worry. If you don't have a credit history or if your credit score is not the best. You might still be approved for personal loans.
When searching for a personal loan, make sure to check the lender or broker's site for signs of trustworthiness. On the site, usually on the footer look for a sentence "authorised and regulated by the financial conduct authority". Also, there has to be a representative apr, which should include the interest rate, the total amount repayable and monthly repayments. Make sure the small print for representative apr is in line with what they say on the rest of the site. It should also be displayed where the company's registered office is located. It's safe if the company is registered in England or Scotland. You can always double-check the registered office address at the Companies House website to make sure it's genuine.
Unsecured personal loans can be helpful if you need cash to pay for unexpected repairs, finance major purchases, or consolidate high-interest debts.
These loans do not require the borrower to own property. But they are not available in the same maximum amounts as secured loans.
Your credit ranking and financial health are also important. This may impact the amount you are approved for and your unsecured loan term.