What is an unsecured loan?

The term ‘unsecured’ refers to the fact that the loan taken out is not secured against anything for e.g. a house or a car.  For the lender an unsecured loan is a bigger risk, and so typically they have a higher interest rate than secured loans.

So how does a lender check whether you are financially able to pay the loan back?

Lenders will assess a borrower’s ability to repay through several checks, the first of which is the initial application form, requesting monthly income and expenditure. This basic check informs the lender as to whether the customer has the surplus money, per month, to repay the loan. Secondly the lender will run a credit check on the applicant, this is a record of your credit usage history, documenting how much credit you have used in the past and your record of repayment. This will give the lender some indication as to the likelihood of repayment.

Why do people take out Unsecured Loans?

Unsecured loans can provide a viable alternative to those who cannot offer a property or vehicle as collateral.

If a customer is thinking of purchasing a product that only needs a small amount of money, such as a new part for the car, then an unsecured loan could be appropriate for the funding. Borrowing money for a fixed period time and with a fixed interest rate (most unsecured loans operate with this) make budgeting and repayments straightforward.

How much can be borrowed?

Unsecured loans range from £500 to £25,000. Due to there being no collateral with the loan it is not possible for the lender to loan more than that amount; the risk would be too high.

Interest rates are generally also considerably higher than a secured loan; again, this is down to the risk taken by the lender due to the loan not being  secured against property or an asset such as a car.

So who are most likely to be accepted?

Having a good credit rating is important when applying for an unsecured loan. As previously stated this is an indicator, for the lender, of how likely you are to pay the loan back.

Being employed full time gives the lender reassurance that the customer has the income coming into their bank account on a monthly basis so they can afford to repay the loan.

Living at the same address for a period of time shows stability, if someone is moving house on a regular basis it suggests that it may make it difficult for the lender to contact them if they move again.

UK Loans and Unsecured Loans

UK Loans provides a comparison table for Personal Loans (all lenders in our table provide unsecured loans). We have carefully detailed all you need to make an informed decision as to which loan is best for you.

UK Loans Smarter Loan search provides you with one application form which once, filled out and submitted, is sent to our panel of lenders starting with the cheapest loan first. This way you can be assured of getting the best value loan available to you.

As always UK Loans suggest that customers analyse their financial position and whether getting an unsecured loan is the best decision for them. Work out a budget and figure whether making the repayments is affordable to you.

If you find that you are in trouble with debt we would point you in the direction of the following websites.

www.stepchange.org/

A free debt advice charity

https://www.gov.uk/options-for-paying-off-your-debts/overview

The governments site offering advice for dealing with debt

Use our award winning technology to search our panel of lenders for some of the most competitive rates.