Unsecured Loans Explained

An unsecured personal loan can provide an accessible and affordable way of borrowing whether you need to buy a new car or plan to take the holiday of a lifetime. They provide a flexible means of borrowing anything between £1,000 and £25,000 over a loan period ranging from one to five years. This means that you are able to tailor the amount you borrow, the loan period you borrow over and consequently the monthly repayments to your income.

There are a wide range of unsecured loan providers on the market, each with different lending criteria and offering a different interest rate. The rate charged on your loan will depend on the amount you borrow (with larger amounts attracting a lower rate of interest) and on your personal circumstances. Only those with a good credit history are likely to be eligible for the headline rate offered by an unsecured loan provider. This is because unsecured loans are a riskier investment for loan providers as there is no security in place from which they can reclaim their funds if repayments are not met. Those with a very poor credit history who have been refused unsecured borrowing may find that a secured loan may be more suitable.

There are two main categories of unsecured loans. Fixed personal loans are the most common variety as the loan amount and total interest payable is divided evenly over the loan term. This is a practical option as it enables you to plan realistically how much you can afford to pay back each month and borrow accordingly. The interest rate is also fixed for the term so whether standard interest rates decrease or increase your monthly repayments will remain the same.

When comparing fixed unsecured loans it is advisable to use the repayment calculator supplied by each loan provider to work out the likely monthly repayments for the amount you want to borrow. You should bear in mind that these are only estimates based on the companies typical APR and your repayments may be slightly higher depending on the interest rate offered. You should also compare fixed loan plans on whether they offer any repayment holidays during the term of the loan and additionally whether they impose any charges for early repayment.