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 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.

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. ​​

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.