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An unsecured loan is what it says, a loan 'not secured' on your property, that you can spend as you would like. People often use them to get a car, a special holiday, home improvements, or maybe to clear costly credit card debts in a single go, thus giving you freedom to make the reimbursements over a longer period with a smaller interest charge.
With an unsecured loan, how much money can I borrow?
You can typically get a personal unsecured loan for up to £15,000 (if you have a good credit history) but some unsecured lenders can offer you as much as £25,000 unsecured (if you have an EXCELLENT credit history). Nevertheless, remember that you are required to have the financial capacity to meet the monthly loan repayments. With unsecured lenders, you can normally be approved in principle over the phone.
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What are the maximum and minimum repayment periods for an unsecured loan?
In part this is up to the unsecured loan provider. Some unsecured lenders will provide an unsecured loan for as little as 12 months, however, a 5 to 7 year term is more likely. The maximum unsecured loan term is normally seven years but certain unsecured lenders will loan over 10 years. Unsecured loans make most sense for those who want to pay back the money borrowed within a few years. If you only want the money for a period of, for example, 6 months, borrowing from your credit card may be more suitable.
How does an unsecured loan interest rate operate?
Unsecured loan rates are generally fixed for the duration of the unsecured lending agreement, which means you know exactly the amount you must pay back per month. The disadvantage is that you might repay more than borrowers who borrow a similar unsecured loan in six months' time - on the other hand, you could pay less! Either way, you will not have to worry about loan repayments increasing. A lot of unsecured loan companies will require that you take out a direct debit for the loan payments. Generally, the rate of interest is less if you take out a bigger unsecured loan amount. With unsecured loans, the critical element to look for is the Annual Percentage Rate (APR). In addition, it is advisable to know the amount the unsecured loan will cost you in total.
Will there be a credit score check?
Yes, unsecured lenders need to ensure that you are an 'acceptable risk' and therefore do not have a history of credit problems and neglected debts. To accomplish this, the unsecured loan provider will request your credit record from a credit reference agency - Equifax, CallCredit plc or Experian. A poor credit record won't necessarily hinder you from getting an unsecured loan, nonetheless, chances are you will get an offer with an increased rate of interest. You might find it more difficult to get a personal unsecured loan if you are self-employed or if you have a short term employment contract.
What is an unsecured loan protection insurance?
This is an insurance policy you can take out to pay (under certain conditions) the unsecured loan monthly payments should your circumstances mean that you are incapable of doing so - for instance, if you have lost your job. Consider carefully if you really require this. Unsecured loan payment protection insurance (a bundle with the loan) is frequently costly and if your financial position is precarious, is it prudent to be going further into debt on top of it all? If you do want a loan payment protection plan, ask about exclusions and small print which could make it impossible for you to claim from the policy.
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