Unsecured loans are loans that are available to both homeowners and those that are renting or living with family, unlike a secured loan, which is only available to homeowners.
There are many lenders that offer unsecured loans, from high street banks and building societies to specialist Internet lenders. As with all loans there are certain eligibility requirements that you must meet in order to take out an unsecured loan, and lending criteria is often more stringent with these loans because they are based on trust and contract rather than being secured against an asset in the same way as a secured loan.
You can get unsecured loans for any purpose, from consolidating smaller debts such as credit and store cards to paying for a holiday, a new car, a wedding, and more. In fact, you can use your loan for pretty much any purpose. You will find that there are some key differences between secured and unsecured loans in terms of the amount that you can borrow, the repayment periods offered, and penalties that are charged on the loan.
Loan amounts can generally borrow between £1000 and £25,000, although some lenders will offer from £500 upwards depending on the lender that you go through. The repayment periods offered tend to be much shorter than with secured loans, with most lenders offering repayment terms of between one and five years, although some offer up to seven or even ten years.
Again, this is something that you should check from one lender to another – remember, the longer the repayment period the lower your monthly repayments will be.
With a secured loan you will most likely suffer a financial penalty in the event that you want to repay the loan early, and this is something that you will not normally have to worry about with an unsecured loan. You will also find that whereas some secured loans involve set up or arrangement fees unsecured loans do not incur charges such as these.
Although it is not advisable to miss repayment or make late repayments on any finance due to the effects on your credit rating, you will not be risking any asset if you do default on repayments on an unsecured loan, whereas with a secured option you could risk losing your home.
One downside of unsecured loans is that in order to qualify you will normally need to have a good credit rating. There are some lenders that will offer unsecured credit to those with damaged credit histories, but the interest rates charged on these can be extremely high.
Other factors that may affect your eligibility to take out an loan include your age, your financial and employment status, how long you have been in your job, your income, and your outgoings.
Unsecured loans provide an effective way of raising finance if you do not own your own home or do not wish to risk losing your home. You should make sure that you compare the interest rates, repayment periods, and terms and conditions from a number of lenders before making any commitment, as these factors can vary from lender to lender.
You will find some unsecured loan offers that also offer a deferred repayment option, where you can take a payment break either at the start of the loan or at specified periods over the term of the loan, which provides increased flexibility for you as the borrower.