Personal Loans

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What to know about unsecured loans

What is an unsecured loan?

Where, with a secured loan, the loan is secured against an asset (such as a house), an unsecured loan is solely based on the situation and credit history of the borrower. An unsecured loan is lent over a set time period with monthly repayments. Although not held against as asset, failing to meet repayments for the loan can incur additional consequences such as fees or charges. 

How much money can I borrow?

The precise amount of money you can borrow through an unsecured personal loan varies from person to person, depending on the lender. Some lenders may give the option to borrow more money or have better rates than others based on the financial history of the person looking to borrow. That being said, personal loans tend to be from around £500 to £25,000.

When applying for a personal loan it is important not to borrow more money than you need or borrow more money than you will be able to pay back.  Late or missed payments can incur further charges or fees and the lender has the right to recover the money if repayments aren’t met. 

Why you might want an unsecured loan

Unsecured loans or personal loans are often used for small value purchases.

Unsecured loans are better suited to small amounts of borrowing as they are usually set at a fixed interest rate over a fixed repayment term.

Unsecured loans are typically used for:

  • Debt consolidation
  • Home improvements
  • Car financing
  • Holiday
  • Wedding

There can be benefits to taking out an unsecured loan, one of which is that if you stick to your monthly repayment plan, it can help improve your credit score. By improving your credit score it can make it easier to get credit again in the future, whilst also potentially increasing the amount lenders are willing to let you borrow. It can also affect the interest rate they offer in relation to the personal loan you are asking for.  ​​

Who can get an unsecured loan?

Lenders will offer you an unsecured personal loan depending on your ability to repay the money you borrow. To decide this they will take your credit report into account.

A credit report tells lenders about the type of accounts you’ve held. This will include any bank accounts, credit cards, car loans, mortgages and so on. It will also have other details such as the account opening dates, your credit limits and loan amounts. What is more, a credit report will include a score that can change based on how regularly and reliably you pay back loans. In a nutshell, a credit report is your financial history and financial reputation.

You can find out more about your credit score here.

Things to keep in mind when checking your eligibility for an unsecured personal loan

There are a few core things to keep in mind when checking your eligibility for an unsecured personal loan. Firstly, it is important to only borrow what you can afford to repay. When looking at your options, it is recommended to draw up a monthly budget. This will help you to manage your finances each month.

If you find that you’re struggling to make your repayments, please don’t ignore the problem. Talk to your lender about options such as extending the loan term to lower the monthly repayments.

Although your home isn’t at risk with a personal loan, lenders (the bank or business that issued the loan) still have the legal right to recover the money if repayments aren’t made.

If the debt is left unpaid, in some cases lenders can arrange for a CCJ (County Court Judgement) to be issued. It’s important you chat to your lender before you take out a loan, and if you need any further guidance, visit the Money Advice Service.

You can find out more about managing your finances here.

You can also get free, friendly support from the Money Advice Service here. 

Why do you need an unsecured personal loan?

You might need an unsecured loan for anything from a new car or home improvements to debt consolidation.

We offer personal loans from £500 - £30,000 over terms from 1 to 7 years.

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