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A personal unsecured loan means exactly what it says, a loan 'not secured' on your property, that you can spend as you want. People often use them to purchase a car, a dream holiday, house renovations, or possibly to pay off costly credit card bills at one time, so letting you to extend the repayments over a longer period with a reduced APR.
With an unsecured loan, what amount can I borrow?
You can normally take out an unsecured personal loan for up to £15,000 (if you have a good credit history) however, some unsecured lenders can grant you as high as £25,000 unsecured (if you have an EXCELLENT credit rating). Nevertheless, don't forget that you should have the income to meet all the loan repayments. With unsecured loan companies, you can normally be approved in principle over the telephone.
What are the min/max repayment periods for an unsecured loan?
In part this is up to the unsecured loan company. A number of unsecured loan companies will grant an unsecured loan for as little as one year, however, a 5 to 7 year term is more likely. The maximum unsecured loan length is typically 7 years but some unsecured lenders will loan over 10 years. Unsecured loans make most sense for applicants who want to repay a purchase within a few years. For people who only want the money for a short period, for instance, six months, purchasing with a credit card may be more suitable.
How does the unsecured interest rate work?
Unsecured loan rates are generally fixed for the length of the unsecured loan agreement, which means you know exactly the amount you will pay back each month. The drawback is that you could pay more than other borrowers who take out a similar unsecured loan amount in six months' time - then again, you could pay less! Either way, you have no need to worry about your loan payments shooting up. A lot of unsecured loan companies will insist that you arrange a direct debit for the loan instalments. Generally, the rate of interest is lower if you borrow a larger unsecured loan amount. With unsecured loans, the most important element to note is the Annual Percentage Rate (APR). It's also important to be aware of how much the unsecured loan will cost you in total.
Do unsecured loan applications include a credit score check?
Yes, unsecured loan companies need to be certain that borrowers represent an 'acceptable risk' and therefore don't carry a history of credit problems and overdue debts. To achieve this, the unsecured loan company will request your credit file from a credit reference agency - Equifax, Experian and CallCredit plc. An impaired credit past will not automatically hinder you from obtaining a personal unsecured loan, but in all probability you will be given an increased unsecured loan interest rate. You might find it more difficult to get an unsecured personal loan if you are a sole trader or are on a short-term contract.
What is an unsecured loan insurance ?
This is an insurance cover you can take out to pay for (under certain conditions) the unsecured loan monthly repayments when you cannot - for instance, if you've lost your job. Consider carefully whether you genuinely need this. Unsecured loan payment protection insurance (a bundle with the loan) is often expensive and if your financial situation is unstable, is it wise to be borrowing more money anyway? If you do want a loan payment protection plan, enquire about exclusions and small print which might make it impossible for you to benefit from the cover.
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