FAQs

When you check your loan options through us, we run a soft credit check. This doesn’t affect your credit score in any way and is not recorded on your credit file.

When you check your eligibility, we try to show you as much information as possible after just a soft search, including real rates and your chance of approval.

Not sure what we mean by real rates? Check out our guide, What are real rates?

If you are eligible for finance, you’ll then see your loan options. If you decide to apply for a loan, your chosen lender may then run a hard credit check. This type of credit check is recorded on your credit file.

Yes, it is possible to get a homeowner loan with bad credit. This is because lenders secure the loan will against your home, adding an extra layer of security for the lender.

With a homeowner loan, you can borrow from £10,000 to £500,000+ and spread the cost over 1 to 30 years.

Bad credit homeowner loan considerations

That said, you should think carefully before securing finance against your home. If you are unable to repay your loan, as a last resort your lender could repossess your property to recover their funds. To be eligible for a homeowner loan, you’ll need to be a homeowner with equity in your home.

Warning: Late repayment can cause you serious money problems. For help go to moneyhelper.org.uk.

Second-charge mortgages 14.26% APRC Representative (variable). Representative example (if you choose to add fees to the loan): assumed borrowing of £25,000 over 7 years, plus a broker fee of £2,850 and lender fee of £367.50 would result in monthly repayments of £509.96, the borrowing rate is 12.78%, the APRC is 14.26% (variable), total charge for credit would be £14,619.14 and the total amount payable would be £42,836.64. Aro is a credit broker and not a lender. Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.

If you would like to learn about what gives you a bad credit score, check out our blogs, guides and FAQs.

This very much depends on your individual circumstances. When it comes to personal loans, lenders will look at your credit score to decide whether to offer you a loan and determine your interest rate. Generally if you have bad credit, you will be charged a higher interest rate.

If a personal loan isn’t an option for you, you may still be able to consider:

• Guarantor loans
• Homeowner loans
• Credit builder cards

Although your credit history does play a big part in your eligibility for finance, there are other factors that a lender will consider, such as your income, expenses, the size of the loan you are looking for, how much debt you already have and your homeowner status.

Warning: Late repayment can cause you serious money problems. For help go to moneyhelper.org.uk

36.8% APR Representative (fixed)

Representative example: 36.8% APR Representative based on a loan of £12,500 repayable over 48 months at an interest rate of 36.8% pa (fixed). Monthly repayment of £500.83. Total amount repayable is £24,039.67.

Yes. An independent organisation called the Money Helper offers free, impartial advice. Call 0800 011 3797 or visit Money Helper.

If you’ve been declined for debt consolidation loans, there are a number of reasons why this could, in fact, happen. A lender will use your credit report as well as their own lending criteria to make a decision on whether they will offer a loan. If you are not on the electoral register or if you have recently moved jobs or house, then these factors can affect a lender’s decision to decline a loan application.

There are debt consolidation loan risks, but they are mostly the same as with most other types of loans. For example, when loan repayments are late or missed, then it can affect your credit score. Likewise, if the loan is secure and then you default on it, your home or asset may be at risk.

Yes. Secured debt consolidation loan (as well as unsecured debt consolidation loans) exist. If you have a secured debt consolidation loan, they secure it against an asset like your property. This added security lowers the risk to the lender and this means a secured loan may come with lower interest rates than an unsecured personal loan, giving you lower monthly payments.

Despite all of this, a secure debt consolidation loan is not without a certain element of risk. Think carefully before securing other debts against your home. Your home may be subject to repossession if you do not keep up repayments on a mortgage. Not to mention any other debt secured on it.

Like with most loans, debt consolidation loans can be categorised into two different categories. These are secured and unsecured loans.

Secured debt consolidation loans are loans where the amount you borrow is secured against the value of an asset that you own, usually your home. This means that, by taking out the loan, you are acknowledging that if you miss the repayments, your home or asset may be at risk.

Unsecured debt consolidation loans, on the other hand, do not require an asset to be secured against.

When searching for a debt consolidation loan, don’t be tempted to borrow more than you need. Any amount you borrow will still need to be repaid. When checking your eligibility for a debt consolidation loan, it is worth keeping a few things in mind:

• Although you’re reducing the number of debts to a single debt, you could be increasing the term of the loan.
  
• You may benefit from lower monthly repayments – but the total amount repayable may be higher overall.
  
• Be sure to compare the interest rate or APR (annual percentage rate) of your existing debts with the interest rates of the debt consolidation loan. This will help you ensure that you benefit from consolidating your debts.
  

The limit will vary from lender to lender, as certain lenders will offer to consolidate more debt than others. The maximum you can consolidate will also depend on your personal circumstances.

The limit on debt consolidation loans will vary from lender to lender.

You can usually consolidate debts such as credit cards, store or retail card debts. Also: overdrafts, medical bills, student loans as well as other unsecured personal loans. There are other debts that you need to consider as well. But with mortgages, debt consolidation loans cannot cover them.

We do get asked “why debt consolidation” a lot. Simply put, if you have multiple debts (loans, credit cards, overdraft, etc.) and are struggling to repay them all each month, then consolidating those debts into one payment could make managing your finances a little easier for you.

A debt consolidation loan groups all your different debts together. This could mean:

• Monthly repayments are easier to manage;
• You spend less time sorting out all your different repayments;
• It’s simpler to budget;
• You may be able to reduce overall monthly repayments;
• You could save money by switching to a loan with a lower APR;
• You could reduce your monthly repayments by spreading them out over a longer term (although this may increase the amount of interest you pay back overall);
• You could reduce the term of your debt and save money on interest.

Why debt consolidation can work

Like with most loans, if you don’t keep up with repayments throughout the term of your contract, then it can negatively affect your credit score. That being said, with just one monthly repayment to remember, you may find it easier to stay on top of your finances.

Regularly repaying a debt consolidation loan (on time) could help improve your credit score in time.  ​​​

So, what is a debt consolidation loan? A debt consolidation loan can be used to pay off multiple loans, credit cards, store cards or overdrafts so that each month you just make one single monthly repayment to a single lender. This simplifies the debt, keeping it all in one place and potentially making it easier to manage.

You could also use a debt consolidation loan to pay off just one credit product (e.g. a single personal loan or credit card) that has a higher APR. If you’ve been consistently making repayments for a while, your credit score may have improved since you first took out your current credit products. This means you might now be eligible for a better rate and able to reduce the amount of interest you’re paying by switching to a debt consolidation loan with a lower APR.

If you’re thinking of consolidating your loans, credit and store cards into one, you should know that it might mean extending the term (that’s the length in months) of your debt, as well as increasing the total amount you repay.

Remortgaging is when you take out a new mortgage for the same property. For instance, if your current fixed-rate mortgage is coming to an end and you don’t want to end up on your lender’s standard variable tariff, you can take out a new fixed-rate mortgage with the same lender or a different one.

Popular reasons to remortgage include:

• Your current fixed-rate mortgage is expiring
• You want a better rate
• The value of your house has increased
• You want to borrow more
• You want to overpay, and you can’t on your current deal

Just remember that if you remortgage before your current fixed-rate term comes to an end, you may have to pay an early repayment charge.

Open Banking is a safe and secure way for us to access the data needed to find you more products from lenders. It allows Aro and lenders to see your digital bank statements and assess how much you could borrow based on real time affordability.

Originally set up by Competition and Markets Authority on behalf of the UK government, it is regulated by the Financial Conduct Authority (FCA). Many of the UK’s biggest banks are enrolled on the Open Banking Directory.

Learning more about what Open Banking is

To find out more about Open Banking and if you would benefit from using it, visit the official website.

We share your data with Consents Online Limited who is an FCA regulated company, of which we are an FCA authorised agent. For more information about how we use your data, visit our privacy policy.

Thinking about borrowing against a buy to let property? How much you can borrow for a buy-to-let depends on the property’s rental income per month. This will be used to work out how much you are able to borrow to purchase it.

You’ll need to have a 25% deposit available. If not, you won’t be able to apply for a buy-to-let mortgage. Learn more about buy to let deposit size and other buy to let considerations.

You should contact a mortgage adviser when:

• You’ve found a property
• You have a deposit (of at least 5% of the property’s value for personal property purchase, or 25% for a buy-to-let property)
• You’ve checked your credit score is healthy

There are fewer options available to landlords who don’t also own the home they live in, however it is still possible to get a buy-to-let mortgage.

Yes, you can. However, you may face exit fees and early repayment charges. Check the terms of your current mortgage to find out how much you will need to pay and whether it’s worth waiting until your mortgage contract ends. You could also look into transferring or porting your current mortgage deal to your new property.

This all depends on your current lender and mortgage contract. If you wish to do this, get your current mortgage details and speak to an adviser. They will be able to tell you if porting is possible and whether that is the best solution – sometimes it is worth paying the early repayment charge and getting a new product. An expert adviser will be able to get you the right solution.

This all depends on the value of your next property compared to your current property, and how much equity is currently in your home. If you’re downsizing or have been paying off your current mortgage for a long time, it’s likely that you’ll have enough equity in your home to cover the deposit needed for your new property.

If you’re upsizing, the deposit you need for your new property is going to be bigger than the one you needed for your current home. If you’ve been paying off your mortgage for a while now, you may have enough to cover it from selling your home. If not, you’ll need to find the money to pay the difference.

Before you remortgage, check your credit report well in advance to make sure it’s in as healthy a position as possible. If you spot any errors, make sure you get them removed.

Other remortgage considerations

You can also check if there are any quick credit score-boosting wins that you can capitalise on. For instance, registering to vote or keeping your credit utilisation low for the next few months.

To remortgage, your outstanding mortgage must not be more than 95% the property value. This means the equity you have in your home (how much of it you own) must be worth at least 5% of the property’s value.

How long does it take to remortgage a house? In general, remortgaging can take up to eight weeks. You can usually secure a new mortgage deal from three to six months before your current deal ends, depending on your existing contract.

For more, read how long does it take to remortgage and release equity.

There are a few different reasons why you might want to remortgage. Moreover, we’re asked regularly when should I remortgage?

First, those reasons why you might want to do so include:

• Your current mortgage deal is coming to an end.
• You want a better rate.
• The value of your house has increased.
• You want to borrow more.
• You want to overpay, and you can’t on your current deal.

Things you should consider when you think about remortgaging

Be mindful that you might choose to remortgage earlier than six months before your current mortgage deal ends. But if you do, there might be an early repayment charge to consider.

Yes, you can make a joint mortgage application.

You’ll need to have the other applicant’s consent. This also includes their personal details and information about their financial situation. For instance, the other applicant’s income and spending tendencies when making your application.

Your mortgage rate (or APRC) is how much you’ll see in charges to borrow money over the term of your mortgage. This also includes any additional fees or charges. As a result of all this, you’ll see the expression of this as a percentage. This is in order to help you easily compare different mortgages.

How to calculate a mortgage rate

There are many factors that can influence your mortgage rate. But two that you can have an impact are your credit score and the size of your deposit. A good credit score and a bigger deposit can give you a lower APRC. In turn, that means cheaper monthly payments. That’s how to calculate a mortgage rate.

How much deposit do you need for a house? Well, you’ll usually need to pay around 10% of the property’s value. However there are mortgages that only require a 5% deposit.

Generally though, more is always better when it comes to how much you need for a house deposit. This is because the more you can put down as a deposit in relation to the property’s value (i.e. the lower your LTV ratio), the lower your monthly repayments are likely to be.

First, you’ll need to decide whether you’re buying a property on your own or with someone else. If you’re buying with someone else who has an income and can contribute towards the house deposit, it’s likely you’ll be able to borrow more. That’s one part of discerning how much can I borrow on a mortgage.

How much I can borrow on a mortgage?

There are mortgage calculators online that’ll give you a rough idea of the maximum amount you can borrow. You can then use this to set a budget for your new home.

To apply for a mortgage, you’ll need to speak to a mortgage adviser. They will find the right mortgage option for you. Once you’ve had your offer accepted on a property, they will then take you through every step of the mortgage application process. You’ll also need a solicitor (conveyancer) to complete the legal work involved with buying a home.

No, if you have the cash to buy a property outright, you don’t need a mortgage to buy a home. If you don’t have that much cash available, you will need to apply for a mortgage.

People often ask us to compare interest-only vs repayment mortgages and what the difference is.

The Interest-only vs repayment mortgage

An interest-only mortgage is where you only pay off the interest the grows on your mortgage. This can mean that your monthly payments are lower. However you will need to eventually repay your mortgage once your the term comes to an end.

More about the repayment mortgage

The most common option is a repayment mortgage. This is where you have the security of paying off a bit of the loan as well as the interest with each monthly payment. If all repayments take place, at the end of the term you will own the property completely.

We often get asked about the difference of a fixed vs variable rate mortgage. Here it is, in a nutsell.

With a fixed rate mortgage, your mortgage repayments will remain the same for an agreed fixed rate period – often from two to five years. After that, it’s common to remortgage to a new fixed rate deal, or your mortgage will revert to your lender’s standard variable rate (SVR).

With a variable rate mortgage, your mortgage payments could go up or down during your mortgage term.

Types of variable rate mortgages

There are two main types of variable mortgage:

• Tracker mortgages, which track the Bank of England base rate, and;
• Discount mortgages, which offer a fixed discount on the lender’s SVR (which can fluctuate).

How to decide on fixed vs variable rate mortgage

Your mortgage adviser will tell you what the best option for your circumstances is after completing a fact find with you and getting to know your requirements.

LTV ratio stands for loan-to-value ratio. Your LTV ratio is used by lenders to decide how risky it is to lend you the money to buy your home.

It compares how much of the property you will own – i.e. how much deposit you can put down in relation to the property’s value – to how much they will need to lend to you to make up the difference. The lower your LTV ratio, the better the mortgage rate you’re likely to be offered.

There are a few different factors that affect the mortgage rate you’re offered. Two things that you can do to improve the rate that you’re offered are:

Mortgage rate offer factors

• Having a good credit score;
• Putting down a bigger deposit.

APRC stands for Annual Percentage Rate of Charge. It shows how much it will cost you to borrow money over the term of your mortgage, taking into account any additional fees or charges. APRC also takes into account that your lender may offer you a lower interest rate for the first few years. It is then expressed as a percentage so you can easily compare your different mortgage options.

APRC vs APR

APRC is different from what an APR is specifically, so it is important to note the differences. You can also find out how your APRC is decided.

To be eligible for a mortgage, you’ll need to have a few things going for you.

4 critical factors to be eligible for a mortgage

• You must 18 years old or older.
• A deposit of at least 5% of the property’s value.
• An income (or joint income) that would allow you to comfortably make your mortgage repayments.
• A healthy credit score.

A mortgage is a type of loan that’s used to buy a property. With a mortgage, the finance you borrow to buy your home is secured against the value of the property. This means that if you are unable to repay your mortgage, your lender could take your home to recover their costs.

Score booster is our term for credit builder products. It refers to a product that you can use to help give your credit score a boost. With a score booster or credit builder card, when used little and often and repaid in full each month, it can improve your credit score over time.

How do you compare a personal loan vs credit card?

With a credit card, you have access to a line of credit. Consequently, you can spend up to a certain limit each month. Once you repay what you owe, that amount is available to you again. Then they charge you interest on your borrowing only if you don’t repay what you owe in full when your bill is due. There are many different types of credit cards that have different features and benefits. These range from helping you spread your costs, clear existing credit card debts or giving you rewards for your spending.

More about personal loan vs credit card

With a personal loan, you borrow a fixed amount off a lender. Then you pay it back in monthly instalments plus interest over the term of your loan. Once you repay your loan in full, you’ll clear your debt. Then, they apply interest to the amount you borrow over the whole term of your loan. As a result, you’ll pay back more than you borrow at the end of your term.

To cancel a credit card, you’ll need to have cleared the balance. Once the balance has been cleared, get in contact with your credit card provider and let them know you want to cancel your card.

Simply not using the card will keep the account open, so it’s critical that you contact your credit card provider if you want to close it.

A cash advance is a service provided by most credit card companies. In short, it allows you to withdraw cash from an ATM or at your bank using your credit card. Your cash advance limit may be different to your card’s credit limit. Consequently, the APR they charge you with may be different to your card’s usual APR. You’ll face charges on interest for a cash advance from the moment you borrow the money to until you repay it.

A 0% purchase card allows you to spend on your credit card without being charged interest for the 0% period.

This means that if you wanted to spread the cost of a big purchase or a number of small purchases, you could make the payments on your credit card, then pay it off in monthly instalments before the end of your 0% period.

Just remember that once the 0% period ends, the card’s usual interest rate will apply to any remaining balance.

A balance transfer card allows you to transfer a balance from one credit card to another. Balance transfer credit cards often come with 0% interest for a fixed term, for instance the first four months of you owning your credit card.

Balance transfer card definition

This means that you can transfer the amount you owe from another credit card (usually for a fee), and not pay interest on the balance for the 0% period. This can give you more time to pay off what you owe without your debt increasing. When your 0% period comes to an end, the card’s usual interest rate will apply to any remaining balance.

How long it takes for your PIN to arrive will depend on your credit card provider, although most credit card providers will send you your new credit card and PIN within 10 days of being approved. For security reasons, your PIN number will usually arrive separately from your credit card.

Not sure whether to use a credit card or debit card? We’ve weighed up the pros and cons in this guide: credit cards vs debit cards.

The answer to this question ultimately depends on your credit card provider. But usually it takes between seven to ten working days from the date they accept you. Your PIN will arrive separately from your credit card.

If you don’t make at least the minimum monthly repayment, this will have a negative impact on your credit score. When you miss monthly repayment, it can remain on your credit report for up to seven years. Therefore, it’s important you don’t borrow more money than you can afford to pay back.

Yes: with a credit card, your credit score can go up. But only if you make at least the minimum repayment on your credit card each month. As a result of that, it’s possible that your credit score would ultimately improve over time.

Yes, you can. If you already have a credit card, you can apply for a new card to take advantage of its different features and benefits, such as balance transfers or 0% on purchases.

The APR you are offered depends on both the credit card you are eligible for and your credit score. Some credit cards will have a set APR. Others may have a range of APRs which vary depending on your credit score and personal circumstances. In this instance, the better your credit score, the lower the APR you are likely to be offered. For more information, we have written a full guide on Annual Percentage Rates explained. You might also like to know what an APR stands for.

Lenders determine credit limit (and what you are offered) will always depend on your credit history and personal circumstances. This means they could decide your credit limit is lower than the maximum credit limit available.

A credit card gives you access to a line of revolving credit. When you get a credit card, you’ll be given a credit limit (maximum spend). You can spend up to this amount on your credit card.

You’ll need to make at least the minimum monthly repayment on your credit card each month, or pay the balance off in full. If you don’t pay the balance off in full each month, you’ll be charged interest on your remaining balance. If you do clear your entire balance on or before your repayment date, you won’t be charged interest on your spending.

Want to know more about credit cards? Check out more of our content to help you decide whether they’re the right finance option for you.

• What are the benefits of having a credit card?
• Can I have more than one credit card?

The rate or APR you’re offered by lenders on a loan will be based on both your credit history and personal circumstances.

At Aro, we precisely assess all of your borrowing needs. Then, we use your data to match you with the best products for you and your finances. We also clearly indicate when a rate is real (guaranteed) or representative (advertised).

This means you’re clear on what rate you can expect before you proceed with a lender.

Not clear on the difference between real and representative rates? Our guide to real rates explains all.

No, our smart search won’t impact your credit score. At Aro, we only use a soft credit check to match you with accurate borrowing options. This means that when you look for a loan, credit card or car finance through us, the search on your credit file won’t be visible to anyone but you.

If you do choose to proceed with a lender, the lender may run a hard credit check to make their final decision.

As a credit broker, currently we have over 50+ UK lenders, credit card providers, mortgages and specialist car finance brokers that we can check your eligibility against.

Aro is a credit broker, not a lender. This means that when you check your loan, credit card or car finance options through us, we use smart decisioning to quickly check your details against our lenders’ eligibility criteria and find you suitable borrowing options.

There are a few key differences between personal car loans vs hire purchase (HP) agreements:

So here’s a point by point breakdown.

• You can borrow more with HP – up to £200,000;
• HP agreements place the burden of security against your car, whereas a personal loan is not;
• With a personal loan, you’ll always own your car from the point of purchase. But with HP agreement, you’ll own your car once you make the last payment;
• You might need a deposit with for HP, you won’t with a personal loan;
• You have more flexibility on where you can buy your car from with a personal loan;
• There may be mileage restrictions with HP while you pay off your finance.

Good question. Essentially, this all comes down to you and your situation. If you have a lower credit score or are already responsible for a number of credit repayments, you might find that the maximum amount you’re eligible to borrow is a bit less.

That said, typically personal loans range from £500 to £35,000 over terms of 1 to 7 years. If you’re a homeowner, you could also think about a homeowner loan. Homeowner loans tend to range from £5,000 to £500,000+ over terms of 1 to 30 years.

Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.

For credit cards, all cards come with a minimum and maximum credit limit. The credit limit you’re offered will depend on your personal circumstances. If you’re not offered the maximum credit limit straight away, your credit card provider could increase your credit limit in the future.

If you’re searching for car finance, Aro can help you compare both hire purchase (HP) and personal contract purchase (PCP) agreements. Our car finance options could help you borrow up to £200,000 over terms of 1 to 6 years.

With a hire purchase agreement (HP), the finance is secured against the value of the car. This means you won’t officially own the car until your last payment has been made. You’ll need to buy your car from a dealership that’s been approved by your chosen lender, then you’ll pay for your car in monthly instalments plus interest over the agreement term. Some lenders will need you to pay an initial deposit at the start of your agreement.

A personal car loan is an unsecured loan which you can use to purchase a new or used car. With a personal loan, you borrow a fixed amount off a lender, then pay it back in monthly instalments plus interest over the loan term.

Here at Aro, you can do a car finance eligibility check for both personal car loans and hire purchase agreements. If you’re eligible for both, you’ll see both options alongside each other in your search results. Moreover, checking your eligibility with us won’t harm your credit score.

When looking to borrow money, it is important to understand the difference a secured or unsecured loan and why you might want one. Whether you are looking to purchase a new car, wanting to consolidate debt, or take out a loan to renovate your home, both secured or unsecured loans could be an option. The decision will depend on your personal circumstances and various factors that you need to consider.

Secured Loans

• Require an asset to secure the loan against —usually this is your property in order to get a secured loan
• Tend to be for larger amounts.
• Tend to be over a longer period of time.
• Can result in lower interest rates.

Unsecured Loans

• Do not secure the loan against your assets.
• Typically these are for smaller amounts ranging from £1,000 – £35,000
• Tend to be for a shorter period of time.
• Interest rates may be higher than a secured loan

What is a Secured Loan?

The Definition of a Secured Loan

A secured loan means that you can borrow money secured against an asset that you own. Secured loans are taken out over a fixed period of time, in which you agree to pay back the loan. Failing to do so, or defaulting on the loan, may result in the sale of the asset in order to recoup any losses.

What are Secured Loans for?

Secured loans are used to borrow large sums of money against something you own, using it as collateral. They are often used for major expenses, such as large-scale house improvements or debt consolidation, and can be taken out over a long period of time. – If a secured loan is taken out against your property, you are agreeing that, in the case that you can’t pay off the loan, you may need to sell your house to make the payment. Likewise, if you used your car as an asset, it may be repossessed if you don’t keep up your repayments. Lenders may see secured loans as lower risk because they know they can collect the money you owe from your assets – if you don’t make the repayments. Because of this security, secured loans may come with better interest rates and longer repayment terms. This can mean lower monthly repayments compared to an unsecured loan -.As with all borrowing, you should consider the total amount you will need to repay overall when considering a product. The amount you are able to borrow and the rate that you are quoted by the lender will depend on your circumstances as with all loans – and with a secured loan, the amount of equity you have in your property will also affect this. If you are a homeowner but your credit history is not perfect, you might find that you are offered secured loans. –

What is an Unsecured Loan?

The Definition of an Unsecured Loan

So, what is an unsecured loan? Well, an unsecured loan is quite straight forward. You borrow money from a lender over a set time period in which you agree to pay back the loan. An unsecured loan is not secured against an asset but failure to make payments on time can can incur additional charges or consequences such as affecting your credit rating.

What are Unsecured Loans for?

Typically speaking, unsecured loans are used to pay for smaller expenses compared to secured loans, these could be things such as car repairs but they can be used for home improvements, a car purchase or debt consolidation. Being smaller value loans, unsecured loans tend to have a shorter repayment terms than secured loans. There can be flexibility and you can pay over various terms of up to around 7 years. Unsecured loans can have a simpler application process than secured loans as they are not secured against an asset It is important to note with unsecure loans, if you don’t make payments, it is possible that additional charges could be applied to the loan. This will show on your credit record. Likewise, in the event that an unsecured loan is not able to be paid back, the lender may still take action to get their money back.

How to know if a Secured or Unsecured Loan is right for you

When looking at a secured loan vs an unsecured loan, there are several things to take into account. If you only want to borrow a small amount of money, for a car repair or small home improvement, then an unsecured loan may be the right option for you. Unsecured loans can be ideal for small amounts of money, with no need of an asset to be secured against the loan. Unsecured loans can also have shorter repayment periods; however, they can also have a higher interest rate. This is due to the shorter lending period. Secured loans, on the other hand, can be for larger sums of money. It is for this reason that they can be suited for large home renovation projects, or to consolidate debt. Secured loans, unlike with unsecured loans, require for an asset to be placed against the loan. It is for this reason that secured loans often require the borrower to be a home owner, in order to use the house as collateral. This is not always the case as, depending on the lender and the amount, other assets can be used – like a car or valuable jewellery. The second aspect worth considering your loan is what your credit score is like. Credit score is taken into account with both secured and unsecured loans. If your credit score is good or excellent then it may be possible to get a high value unsecured loan. If, on the other hand, your credit score is lower than good, then a secured loan may be more viable.

Choosing the Right Loan for You

Before areeing a loan, it is absolutely vital to ensure that the secured or unsecured loan you go for is right for you. If you would like independent advice, it is possible to contact the Money Advice Service. The Money Advice Service is an independent service that offers free, impartial advice. Call 0300 500 5000 or visit the Money Advice Service website.

Lenders will offer you an unsecured personal loan depending on your ability to repay the money you borrow. To decide this they will take your credit report into account.

A credit report tells lenders about the type of accounts you’ve held. This will include any bank accounts, credit cards, car loans, mortgages and so on. It will also have other details such as the account opening dates, your credit limits and loan amounts. What is more, a credit report will include a score that can change based on how regularly and reliably you pay back loans. In a nutshell, a credit report is your financial history and financial reputation.

You can find out more about your credit score here.

Unsecured loans or personal loans are often used for small value purchases.

In general, unsecured loans are better suited to small amounts of borrowing. That’s because they are usually set at a fixed interest rate over a fixed repayment term.

Why get an unsecured loan?

Unsecured loans are typically used for:

• Debt consolidation.
• Home improvements.
• Car financing.
• Holiday.
• Wedding.

There can be benefits to taking out an unsecured loan, one of which is that if you stick to your monthly repayment plan, it can help improve your credit score. By improving your credit score it can make it easier to get credit again in the future, whilst also potentially increasing the amount lenders are willing to let you borrow. It can also affect the interest rate they offer in relation to the personal loan you are asking for. ​​

The precise amount of money you can borrow through an unsecured personal loan varies from person to person, depending on the lender. Some lenders may give the option to borrow more money or have better rates than others based on the financial history of the person looking to borrow. That being said, personal loans tend to be from around £500 to £25,000.

When applying for a personal loan it is important not to borrow more than you need or than what you can reasonably pay back. Late or missed payments can incur further charges or fees and the lender has the right to recover the money if repayments aren’t met.

When looking at a secured loan vs an unsecured loan, there are several things to take into account.

If you’re looking to borrow from £500 to £35,000 then an unsecured loan could be an option for you. With an unsecured loan, you don’t need to secure the loan against an asset, like your home. The lender will simply lend you the money, and you’ll repay it in regular monthly instalments, plus interest. For this reason, unsecured loans are quicker to set up than secured loans and you could have the money in your account the same day.

The rate you are offered for an unsecured loan will depend on your credit score and individual circumstances. You can use an unsecured loan for any legal purpose, such as consolidating your debts, making home improvements, buying a new car or spreading the cost of a holiday or wedding. Unsecured loan repayment terms range from 1 to 7 years.

To be eligible for a secured loan (or homeowner loan), you need to be a homeowner. This is because the loan will be secured against your property, meaning the lender can take your property to recover their costs if you can’t repay what you owe.

Secured loans are used to borrow larger sums of money than unsecured loans, with loan sizes ranging from £5,000 to £500,000+. This is why the lender requires the loan to be secured against an asset. With a secured loan loan, you can receive advice from a qualified adviser on which loan option is before for you and your circumstances, as well as benefit from much longer repayment terms, ranging from 1 to 30 years.

The most common uses of a secured loan are to consolidate debts or make home improvements, however they can be used for any legal purpose. Although your credit score does impact the rate you’re offered for a secured loan, there are also other factors involved such as the amount of equity you have in your home.

Choosing the Right Loan for You

Which type of loan is right for you will ultimately come down to what’s best for you and your circumstances. You may prefer to opt for your lowest rate loan offer knowing it is the cheapest option. However, you may want to lower your monthly repayments by spreading your costs out over a longer period of time. Although this means you’ll pay back more overall, it could make your day-to-day costs more manageable. Finally, you may simply decide to go for the loan option that you’re most eligible for to reduce the chance of having a credit rejection recorded on your credit file. Whatever you choose, just make sure it is the right decision for you.

Before agreeing a loan, it is absolutely vital to make sure that the secured or unsecured loan you go for is right for you. If you would like independent advice, it is possible to contact Money Helper. Money Helper is an independent service that offers free, impartial advice. Call 0300 500 5000 or visit the Money Helper website.

What is an unsecured loan?

The definition of an unsecured loan is actually quite straightforward. You borrow money from a lender over a set time period in which you agree to pay back the loan. It’s not secured against an asset but failure to make payments on time can can incur additional charges or consequences such as affecting your credit score.

What are unsecured loans for?

Typically speaking, unsecured loans help you pay for smaller expenses compared to secured loans. For instance, these could be things such as car repairs. But they can be used for home improvements, a car purchase or debt consolidation. Being smaller value loans, unsecured loans tend to have a shorter repayment terms than secured loans. There can be flexibility and you can pay over various terms of up to around 7 years.

They can also have a simpler application process than secured loans as they are not secured against an asset It is important to note with unsecured loans, if you don’t make payments, it is possible that additional charges could be applied to the loan. This will show on your credit record. Likewise, in the event that an unsecured loan is not able to be paid back, the lender may still take action to get their money back..

The definition of a secured loan

A secured loan means that you can borrow money secured against an asset that you own. Secured loans are taken out over a fixed period of time, in which you agree to pay back the loan. Failing to do so, or defaulting on the loan, may result in the sale of the asset in order to recoup any losses.

What are secured loans for?

Secured loans help you borrow large sums of money against something you own, using it as collateral. They are often used for major expenses, such as large-scale house improvements or debt consolidation, and can be taken out over a long period of time. If a secured loan is taken out against your property, you are agreeing that, in the case that you can’t pay off the loan, you may need to sell your house to make the payment. Likewise, if you used your car as an asset, it may be repossessed if you don’t keep up your repayments. Lenders may see secured loans as lower risk because they know they can collect the money you owe from your assets if you don’t make the repayments.

Because of this security, secured loans may come with better interest rates and longer repayment terms. This can mean lower monthly repayments compared to an unsecured loan. As with all borrowing, you should consider the total amount you will need to repay overall when considering a product. The amount you are able to borrow and the rate that you are quoted by the lender will depend on your circumstances as with all loans, but with a secured loan, the amount of equity you have in your property will also affect this. If you are a homeowner but your credit history is not perfect, you might find that you are offered secured loans.

Not necessarily. There are a few options with a secured loan when moving house.

1. The first option is to see if you have enough money from the house sale to repay the debt in total.
2. The second option is to transfer the loan to the next house you’re moving to. It’s important to note that not all lenders will allow it.

Applicants can complete the secured loan process fairly quickly if you can provide all the information efficiently and accurately.

After you’ve made your secured loan application, you’ll normally receive a quotation that requires both validation and confirmation by your lender. If you decide to take the next step, then your lender will assess your credit report.

If the loan you want is secured against your property, then the lender will want to know its value. In essence, they need reassurance that the amount of equity (another word for ‘worth’ or ‘value’) you have in your home covers the amount of the loan.

With the secured loan process, you may also need to supply banking details and other financial information. This process varies from lender to lender but can take several weeks. You can always ask for an estimated time at the point you decide to proceed.

Whether or not you can get a loan with a low credit score depends on your personal circumstances and the finance options available to you. For instance, if you’re a homeowner, you may have more borrowing opportunities available.

As lenders may consider you more of a risk to lend to if you have a lower credit score, it’s likely that you’ll be offered a higher APR, or you may not receive a borrowing option at all.

If you have a low credit score because you’ve not borrowed money in the past but have a high amount of disposable income, you may want to consider using Open Banking to show to a lender that you can afford to take out the money you want to borrow.

You can also use our online eligibility checker to find out what options are available to you before applying for any finance. Our eligibility check won’t affect your credit score. From there, you can decide if you want to take steps to try to improve your credit score before choosing a lender, as this may improve the APRs and options available to you.

Warning: Late repayment can cause you serious money problems. For help go to moneyhelper.org.uk

So, what gives you a bad credit score? Well, when it comes to credit scores, everyone has to start somewhere. Although there are lots of different factors that can lower your credit score, there are a few main causes that can lead to bad credit:

• Missed or late payments on your credit file
• Little or no credit history
• CCJs or defaults
• Bankruptcy

While those are the big hitters, there are a few other factors that can have an impact:

• Not being registered on the electoral roll
• Having a high credit utilisation ratio
• A hard credit search being recorded on your credit file
• A declined credit application
• Having a high amount of debt

The good news is, anybody can improve their credit score over time. If you need a few tips on how you can give yours a boost, read our guide to improving your credit score.

Warning: Late repayment can cause you serious money problems. For help go to moneyhelper.org.uk

36.8% APR Representative (fixed)

Representative example: 36.8% APR Representative based on a loan of £12,500 repayable over 48 months at an interest rate of 36.8% pa (fixed). Monthly repayment of £500.83. Total amount repayable is £24,039.67.

The main differences between secured and unsecured loans include:

Secured

A secured loan requires an asset to secure the loan against —usually this is your property in order to get a secured loan

• They tend to be for larger amounts.
• Tend to be over a longer period of time.
• Can result in lower interest rates.

Unsecured

Do not secure the loan against your assets.

• Typically these are for smaller amounts ranging from £1,000 – £25,000
• Tend to be for a shorter period of time.
• Interest rates may be higher than a secured loan

To find out more about the difference loan types, read our guide, What is a secured loan?

Yes, any lender can turn you down for a loan. When you check you eligibility for a loan, it’s up to the lender to decide whether they can lend to you (it’s their money, after all).

It’s important to know that each lender looks at your credit report to decide whether the loan or credit is affordable.

This information, along with each lender’s own set of conditions, helps them work out if they can give you a loan or credit.

Each lender calculates the credit score differently. For example, a person may get turned down because their credit history is limited, or their credit profile shows they’ve had trouble repaying debts in the past, or their file shows a number of ‘search footprints’ from previously applying for loans.

In the view of a lender, all of these examples can make it riskier to lend to a person, which is why they might be turned down.

A guarantor loan is a type of unsecured loan where someone else, usually a friend or family member, agrees to pay the loan if you can’t afford to make the repayments.

Your friend or family member will have to co-sign the credit agreement in order for the guarantor loan to be accepted. This means that if you fall behind with repayments, the lender can ask the guarantor to make the repayments instead.

How it works is a guarantor loan is initially paid into yours or the guarantor’s bank account, then you will need to make each repayment directly to the lender.

If you’re turned down for an unsecured loan because of a low credit score, a guarantor loan is an option you could take.

However, you must be confident that you can repay the loan back, because if you struggle to make repayments it would have serious financial consequences for your friends and family members.

Can you pay off a loan early? Yes, if you can afford to. The benefit of this is that it can help save you money on interest repayments in the long run.

However, you need to be aware that paying off a loan earlier than expected may mean you have to pay an early repayment charge (or something similar).

How much this charge is, and how it works varies from lender to lender, but you might find it’s approximately the equivalent to one or two months’ loan interest. So, before you make your decision, check with your lender what the terms of your loan are before you pay off the loan entirely.

Not really. Well, correction: when it comes to the maximum age for taking out a loan, there’s no official maximum age limit. You do, however, always need to be over 18 years old. Each lender has their own set of criteria which have different upper and lower age limits, so it’s worth shopping around to find one that suits you.

The fact is, what most lenders will look at is your credit report. That is why it is important to check it yourself and report any inaccuracies.

The time it takes to receive the money for an unsecured loan is different from lender to lender.

That’s because each lender is different when it comes to looking at your loan or credit application and making their decision.

If you’ve applied for a secured loan that’s tied to your house, the process can take a little longer – typically four to five weeks.

A secured lender also needs to get information from your mortgage company to value the property. Your lender will also need proof of your identity and your income before agreeing to go ahead with the loan.

This stands for Annual Percentage Rate – which is the cost of borrowing money over the course of a year. Having it as a percentage figure allows people to compare the cost they’ll face when taking out a loan or credit card. It is important to note that an APR is different from an APRC.

Lenders also use something called ‘Representative APR’. This is the APR that 51% or more of successful applicants will get. But that rate may not be available to the other 49% of applicants, who are likely to be offered a higher rate.

This is why it’s so important to pay attention to the APR% when checking your eligibility, as it gives you a good idea of just how much you will be paying each year for borrowing money from lenders. For more advice, take a look at our article on explaining Annual Percentage Rates. You might also like to know how your APR is decided or what is Representative APR %?

With some loans, it’s your choice how you use it. But other loans, such as a car loan or a debt consolidation loan, they’re more clearly intended for a specific purpose.

The amount you can borrow on a secured loan is usually much larger than an unsecured loan. Popular ways to spend a secured loan include large-scale home improvements, legal purposes, and debt consolidation.

Unsecured loans, on the other hand, have a much smaller loan limit and are better suited to smaller value purchases such as essential home improvements and vital car repairs.

Typical APR % (Annual Percentage Rate) is used by lenders so you can easily compare rates when you check your eligibility for a loan. Lenders use the term to describe the amount of interest you’ll pay annually on money you want to borrow. Typical APR %must reflect at least 66% of secured loan business expected to result from advertising the rate. For more advice and guides, including what APRC is, take a look at our other Mortgage FAQs.

Redemption fees is another term for early repayment charges. It’s the charge you pay if you choose to repay your loan earlier than the original final repayment date.

Lenders do this to try and get back some of the money they’ll lose out in interest repayments if you repay your loan early. A typical penalty amount is about the equivalent of one or two months’ loan interest.

So, if you are considering repaying your loan back early, it’s definitely best to work out whether it’s worth paying the loan back earlier or not.

Also, not all loans have an early repayment charge or lender redemption fees. So always check with your lender first.

This is sort of a ‘how long is a piece of string?’ question.

It all depends on the lender. An application can take anything from a few minutes or a day, to several weeks.

Where they differ is the process after the application. For instance, a small personal unsecured loan is likely to be faster than a mortgage for £200,000, as additional documentation is required.

So the piece of string really depends on your situation, the lender you choose, the forms to complete, and how quickly you can return the forms.