Whether you’re looking to fund a home renovation, consolidate debt, or cover an unexpected expense, an unsecured personal loan could give you access to the finance you need, without putting your home or your collateral up as security.
To find out more about taking out an unsecured loan, get in touch with our team of specialist finance brokers at Believe Loans.
Are you a homeowner or a tenant?
What is an unsecured loan?
Unsecured personal loans are financial products that allow you to borrow money without putting up any collateral to secure the loan against.
As such, unsecured loans are typically offered for smaller amounts of money, such as £1,000 to £25,000. While you can use an unsecured loan however you need, they’re primarily used for debt consolidation, paying for home improvements, or covering unexpected expenses.
Unlike a secured loan that is backed by assets such as your home or car, unsecured loans are determined on your credit record and other factors to assess your ability to repay the loan. Because of this, the interest rates on unsecured loans are typically higher than those on secured loans. This is because the lender is taking on more risk lending to you as they don’t have any collateral to fall back on should you default on your repayments.
Eligibility criteria to take out an unsecured loan
The eligibility criteria for taking out an unsecured loan will vary from lender to lender, but some common factors include:
Age: You must be at least 18 years old to apply for an unsecured loan.
UK residency: You must be a UK resident with a permanent address. The easiest way to prove this is by getting on the electoral register. However, you can also provide birth certificates, passports and utility bills as proof of residency too.
Income: You must have a regular income that is sufficient to cover the monthly loan repayments.
Credit score: You must have a good credit score.
Employment status: You must be employed or self-employed.
If you meet all of the eligibility criteria, you’ll still need to be approved for the loan. The lender will assess your application and decide whether you are a good risk.
The advantages of an unsecured loan
Simple application process
Personal loans can give you fast access to much needed cash. As soon your loan is approved, the money goes into your account. For some people, the money reaches their bank account within a few hours, however, most receive the funds in a few days.
As most personal loans are for smaller amounts of money, their repayment terms can be more flexible. Most lenders will let you choose how long you want the repayment terms to be, so you can tailor the loan to your needs.
Things to consider before you get an unsecured loan
While an unsecured loan may seem like an easy answer to access large sums of cash, these financial products aren’t without risk. As such, there are a few things you should consider before signing on the dotted line, for example:
The amount of money you need to borrow
How much money do you actually need to borrow? Are there any cheaper ways to finance your needs? Can you save up some money or use your savings to cover the cost? Borrowing more than you need can make it harder to repay the loan and could lead to financial problems.
The interest rate
The interest rate is the cost of borrowing money. It’s expressed as a percentage of the amount borrowed and is charged over the life of the loan. The interest rate you pay will vary depending on the lender, the amount borrowed, and your credit score. For awareness, the higher your interest rate, the more you will pay in interest over the life of the loan.
The repayment term
The repayment term is the length of time you have to repay the loan. The repayment term will also affect the monthly repayment amount. A longer repayment term will mean lower monthly repayments, however, it will mean you pay more interest over the life of the loan.
Associated costs, fees and charges with taking out an unsecured loan
In addition to the interest rate, there may be other fees and charges you have to pay when taking out an unsecured loan. These could include an origination fee, an application fee, or a late payment fee. Read the terms and conditions carefully before you sign anything. Make sure you understand all of the fees and charges associated with the loan.
Your credit score
Your credit score is a measure of your creditworthiness. It’s used by lenders to assess your risk as a borrower. A good credit score will help you get approved for a loan with a lower interest rate. It could also give you access to a wider selection of lenders. If you have a bad credit report, don’t panic, at Believe Loans, our specialist finance brokers have experience helping borrowers with poor credit history secure a loan.
Your ability to make the monthly payments
Can you afford the monthly repayments? Make sure you factor in the interest rate, fees, and charges when calculating your monthly repayment amount. You have to make the monthly repayments on time and in full.
Your debt-to-income ratio
Your debt-to-income ratio is the amount of debt you have compared to your income. A high debt-to-income ratio can make it more difficult to get approved for a loan and may result in a higher interest rate.
The purpose of the loan
The purpose of the loan can affect your eligibility as well as the interest rate offered. Loans that are used for consolidating debt or for home improvements can have lower interest rates than loans that are used for other purposes e.g. buying a car.
Defaulting on the loan
If you default on an unsecured loan, the lender can take legal action against you. This could include garnishing your wages, taking your property, or suing you. Defaulting on a loan can also damage your credit score, making it more difficult to get approved for loans in the future.
Avoid loan scams
There are many loan scams out there, so it is important to be careful when you are looking for a loan. Some common loan scams include:
Fake lenders: These lenders may not be legitimate and may not actually give you the loan.
High-interest rates: Some lenders may charge very high interest rates, which can make it difficult to repay the loan.
Hidden fees: Some lenders may charge hidden fees, which can add up over time.
Prepayment penalties: Some lenders may charge a penalty if you pay off the loan early.
To avoid loan scams, do your research and only borrow money from reputable lenders.
Comparing unsecured loans
There are many different unsecured loan lenders out there, and each one offers different terms and conditions. This can make it difficult to compare loans and find the best deal.
However, don’t let that put you off. Here are some reasons why you should compare unsecured loans:
To find the best interest rate: The lower the interest rate, the lower the amount of interest charged. Get quotes from at least three different lenders before you make a decision. This will give you a good idea of the interest rates and terms that are available.
To find the shortest repayment term: A shorter repayment term can mean lower interest payments.
To find the lowest fees: Some lenders charge additional fees, so finding one that doesn’t could save you money.
To find the most flexible terms: Some lenders offer more flexible terms, such as the ability to make early payments or skip a payment if you need to.
What you’re looking for, ideally, is an unsecured loan with a term rate that means you can afford each monthly payment, but doesn’t tie you in for an extended period of time paying high interest rates. You want one with low interest rates, and no hidden fees and charges.
Alternatives to unsecured loans
Credit cards are a popular alternative to unsecured loans as they offer a revolving line of credit, meaning you can borrow money up to your credit limit and repay it as you go. Credit cards typically have higher interest rates than unsecured loans, but you can earn rewards, such as cash back or travel points, for using them.
Personal lines of credit
Personal lines of credit are similar to credit cards, but they offer a fixed line of credit rather than a monthly one. This means you can borrow up to a certain amount of money and then repay it over a set period of time. Personal lines of credit typically have lower interest rates than credit cards, but they may have stricter eligibility requirements.
Peer-to-peer lending is a relatively new form of lending that connects borrowers with lenders online. Lenders can choose to lend money to borrowers at a rate that they set. Peer-to-peer lending typically has lower interest rates than unsecured loans, but it may have higher fees.
Believe Money – let us help you get an unsecured personal loan
If you think an unsecured loan could be the right solution for you, the first step is to speak to a professional loans broker to see if you’re eligible.
Believe Loans is not a lender but a professional broker, regulated by the Financial Conduct Authority. We have access to a wide range of lenders, and our specialist brokers will compare unsecured loans to find the best deal that suits your personal circumstances.
Once we find a provider that works for you, we’ll help you with the application from start to finish. If you have any questions or want to get the ball rolling on your loan application, please get in touch with an advisor for free today.
How much will my monthly instalments be?
The instalments depend on the amount of money you borrow and will vary depending on the credit check. The best way to find out is by contacting our broker service to discuss your finance options.
What if my financial situation changes?
We’re living in difficult times, and UK lenders do understand this. Missing payments can get you in trouble, but if you lose your job further down the line, your provider might offer a payment holiday, which gives you a break from your monthly payment obligations.
Debt relief orders might seem like a good idea, but they will impact your future credit, so it’s best to find alternative ways to pay off the loan.
How much do Believe Loans charge?
When we work with you to compare personal loans, we charge no upfront fees. Instead, we’ll add a small fee to your loan, so you won’t be out of pocket.
What can I do to improve my chances of getting approved for an unsecured loan?
Here are some tips to help improve your chances:
Get a good credit score. This is the most important factor in getting approved for an unsecured loan. You can improve your credit score by paying your bills on time and keeping your debt levels low.
Reduce your debt. If you have a lot of debt, you might find it difficult to get approved for an unsecured loan. Try to reduce your debt before you apply for a loan.
Get a co-signer. Even if you have a good credit score, you could get a better deal if you can get someone to agree to be co-signer. A co-signer is someone who agrees to be responsible for the loan repayments, should you default.
Shop around for the best deal. Compare interest rates and fees from different lenders before you choose a loan.
How to apply for an unsecured loan
Simple, easy application
We search our panel of lenders to find the deal that’s right for you
When you confirm your chosen deal, we get your application moving
The money lands in your bank
account – usually within two weeks
We compare loans from our panel of the UK’s top lenders to get you the best deal.
Mon – Thursday 9am – 7:30pm
Friday 9am – 3pm
Call from a mobile or Landline: