Many providers won’t lend to people without collateral because they consider it a security risk. However, unsecured loans are a great solution if you need to borrow money, as lenders judge affordability on other factors instead of assets you own.
As with all loans, there are plenty of things to think about, and we’ll go through them in this guide. So, read on to learn everything you need about unsecured loans.
Are you a homeowner or a tenant?
What is an unsecured loan, and how does it work?
An unsecured loan (or personal loan) is a borrowing solution you enter into with a provider. They give you the money upfront, and then you pay it back over time until the total amount is paid back in full.
As we mentioned before, the good thing about an unsecured personal loan is you don’t need to be a property owner or have valuable assets to offer as collateral.
However, lenders still use eligibility criteria to determine whether you’re a suitable unsecured loan candidate, so it’s important to consider whether you can afford the repayments before signing on the dotted line.
If you make your loan repayments on time, you’ll be able to clear the loan and build your credit score. The problem comes when you don’t keep up with the repayments.
What’s the difference between unsecured and secured loans?
Secured loans are more popular than unsecured ones because they’re easier to get and offer lenders more security. However, a secured loan is only available for homeowners or individuals with valuable assets.
With fewer risks for loan providers, people can usually borrow larger sums of money over the years instead of months.
In theory, unsecured loans are available to anyone if they can afford the monthly repayments.
While you can usually borrow between £1,000 and £25,000 with an unsecured loan, secured alternatives allow in excess of £100,000.
The advantages of an unsecured loan
Unsecured loans can be highly beneficial, despite their risks. There’s no doubt that secured loans are often seen as the safer option, but if you don’t have any assets, then an unsecured borrowing arrangement can give you access to additional funds.
Here are some of the advantages unsecured loans offer.
Simple application process
Personal loans are perfect if you need some cash but don’t want to wait for ages. As soon as these loans reach approval, the money goes into your account.
For example, some find their money reaches their account in hours, but most receive the funds in a few days.
Secured loans take longer to arrange, but unsecured personal loans are more convenient.
Easier to secure
Unsecured loans are much easier to get than secured loans in terms of accessibility because you don’t need to own a property. There are plenty of lenders in the UK, so most people can access these loans – as long as they meet the eligibility criteria.
Also, most providers won’t ask for a guarantor, which is beneficial if your personal circumstances mean you won’t be able to supply one.
Perhaps the best part of personal loans is the flexibility they offer. As unsecured loans are usually for shorter amounts, they’re more flexible. Secured lenders will often set strict terms in place, including the length of the loan and monthly repayments.
Most lenders will let you choose how long you want the repayment terms to be, so you can tailor the loan to your needs.
Are personal loan deals better than secured loans?
You might be wondering if you should get an unsecured loan if you own a property, and it entirely depends on your circumstances. There are some cases where a secured loan might be better than a personal loan – so let’s look at the disadvantages.
The potential fees
It’s important to remember that when you initially agree to the repayment period, your lender will expect you to stay in line with it. The provider might charge a fee if you want to pay back the loan early.
However, this depends on your chosen lender, so it’s not always a given.
Your credit rating matters more
Perhaps the biggest drawback of unsecured loans is the lending criteria. Your credit history is the most important consideration for providers, and most will refuse a loan if your credit is less than good.
This is due to lender security requirements, as you won’t have any assets to offer as collateral. Some loan providers will still accept your application, but you’ll have higher interest rates to compensate for average or low credit scores.
You can’t borrow as much money
Most personal loans let people borrow up to £25,000. However a secured loan gives you access to more money. But if you don’t have the collateral, these types of loans tend not to be available to you.
Many people choose unsecured loans when they want to borrow money and pay it back relatively quickly, as the terms aren’t as stringent.
There will be implications if you don’t repay the money
Unsecured loans still have strict payment terms, and it’s your responsibility to meet them. If you fail to keep up with the repayments, your provider will issue warning notices and take further action if you cannot pay back the money.
You might have to go to court, and the provider has the right to take any of your possessions to cover your outstanding payments. It will also impact your credit file, and you’ll have problems getting credit in the future – especially with county court judgements.
However, if your financial circumstances change, you might be able to agree on new terms with the lender.
How to get an unsecured personal loan
If you think an unsecured loan could be the right solution, the first step is to speak to a professional loans broker to see if you’re eligible.
Believe Loans has access to a wide range of lenders, and our specialists compare unsecured loans to find the best arrangement that suits your circumstances.
We’ll also consider numerous factors to decide whether you’re eligible and put you in touch with our partners so that you can make a loan application.
Do you have a good credit record?
If you’ve taken out loans in the past, it won’t impact your application. The issues come when you don’t have a good credit rating, or your file shows problems with car finance, consumer credit or credit card debt; your application will it most instances be unsuccessful.
Saying that, some lenders will accept your application if you can provide a guarantor who’ll take responsibility for the loan should you default on repayments.
Are you in employment?
Lenders will want to proof of income, as they’re less likely to offer money to unemployed individuals. They want to see that you have a regular income.
If you aren’t employed, that doesn’t mean you can’t take out a loan, there are solutions, but they often come with high-interest rates and strict terms.
Are you on the electoral register?
Everyone has to prove their identity as a permanent resident of the UK, and the electoral register is the best way to do this. However, if you can provide birth certificates, passports and utility bills, the lender will probably accept these as proof.
If you’re compatible with the basic eligibility criteria, our specialists will work with you to find lenders.
How much can I borrow?
While secured loans use your viable equity to determine what you can afford, the amount you can borrow with a personal loan depends on your personal, financial situation.
Are there limits on what I can use the loan for?
While there aren’t limits in place on what you can use the money you borrow for, all loan providers will want to know what you’re planning on using the loan for.
The most common personal loan applications are for:
The money borrowed for home improvements, interior or exterior, is seen (in the eyes of the lender) as a good investment because you will add value to your property.
A new car
If you don’t want to apply for car finance, you can use a loan to purchase a car. It doesn’t matter whether the vehicle is new or used, but it should be a sound investment that won’t result in high costs further down the line.
Some people also use short-term loans to pay outstanding household bills and other debts to boost their personal credit rating. As long as you pay the loan back on time, consolidating your debts can positively impact your future credit.
Believe Money will help you find the best personal loans for your needs
Believe Loans is not a lender, but a professional broker, regulated by the Financial Conduct Authority. Our team is dedicated to helping you find the best personal loan deals and look at factors such as your minimum annual income, credit report, and how your financial situation might change.
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.
What will my monthly instalments be?
The instalments depend on the amount of money you borrow and 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.
How It works
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.
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