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A personal unsecured loan is what it says, a loan 'not secured' on your property, that you can spend as you would like. People tend to use them to purchase a new car, a dream holiday, home improvements, or possibly to settle costly credit card bills at one time, so giving you freedom to stretch the payments over a longer term with a smaller interest rate.
With an unsecured loan, how much is it possible to borrow?
You can usually take out a personal unsecured loan for up to £15,000 (if you have a good credit rating) however, some unsecured lenders can give you up to £25,000 unsecured (if you have an EXCELLENT credit record). Then again, remember that you must be able to afford all the loan repayments. With unsecured loan companies, you can often get approval in principle over the phone.
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What are the min/max repayment periods for an unsecured loan?
This partly is up to the unsecured loan company. A number of unsecured loan companies could provide an unsecured loan for as little as 1 year, though 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 repay the money borrowed over a few years. If you simply need the money for a short period, say, six months, purchasing with a credit card may be better.
How does an unsecured loan interest rate operate?
Unsecured loan APRs are generally fixed for the whole term of the unsecured lending agreement, which means you know precisely the amount you will have to repay every month. The disadvantage is that you could potentially repay more than borrowers who get a similar unsecured loan amount in 6 months' time - on the other hand, you could pay less! Either way, you do not have to be anxious about your unsecured loan payments soaring. Many unsecured loan providers will request that you take out a direct debit for the loan repayments. Usually, the loan interest rate is smaller when you take out a bigger unsecured loan. With unsecured loans, the most important factor to check out is the Annual Percentage Rate (APR). It's also advisable to know how much the unsecured loan will cost you in total.
Do unsecured loan applications include a credit check?
Yes, unsecured lenders need to be satisfied that you represent an 'acceptable risk' and therefore don't carry a past of credit problems and unpaid debts. To achieve this, the unsecured loan provider will obtain your credit file from a credit reference agency - Equifax, Experian and CallCredit plc. An adverse credit record will not automatically stop you from obtaining a personal unsecured loan, however, in all probability you will have to pay a higher unsecured loan interest rate. You may find it more difficult to get approved for a personal unsecured loan if you are a contractor or if you are newly employed.
What is an unsecured loan payment protection insurance?
This is an insurance you can get to pay (under certain conditions) the monthly repayments of the loan if you are unable to - for example, if you've lost your job. Consider carefully if you genuinely need this. Unsecured loan payment protection insurance (a bundle with the loan) is often costly and if your financial circumstances are uncertain, is it the best move for you to be borrowing more money anyway? If you do need a loan payment protection plan, ask about exclusions and small print which could make it difficult for you to claim from the policy.
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