Outlined below is a guide to unsecured loans. It will give you a better understanding of what an unsecured loan is as well as what to consider before applying for one. As
name implies, an unsecured loan does not require borrower to put up any security against it. An unsecured loan is a personal loan where lender has no claim on a homeowner's property should they fail to repay. Instead, lender is relying solely on ability of a borrower to meet their loan borrowing repayments.
People who opt for unsecured loans are usually those who aren't in a position to offer collateral or those with adverse credit records, county court judgments, mortgage arrears or debt issues.
By their very nature, unsecured loans involve lender taking more risk – for which interest rate is increased. However, while a bad credit history will not necessarily bar you from an unsecured loan interest rates will reflect lender's increased risk.
The risk will be reflected, too, in lender's tolerance of late payments. Without any collateral, lender will be quicker to take legal action to recover missed instalments – and in such cases, lender will usually demand repayment of full amount borrowed plus interest plus legal costs incurred. In such cases, court proceedings could lead to your home being sold to raise money.
The amount you are able to borrow can start from as little as £500 and go up to £25,000. Because you not securing money you are borrowing, lenders tend to limit value of unsecured loans to £25,000. The repayment period will range from anywhere between six months and ten years.
Most lenders give you option of paying loan back within between six months and ten years. It's your decision how much or how little time you need to pay back loan in full but you should try not to stretch yourself too much as last thing you want is to default on repayments.
