An unsecured or ‘personal’ loan can be helpful for people who need money to help with a big purchase such as a car or some home improvements. It differs to a ‘secured’ loan as the lender has no claim on your finances if you fail to keep up repayments.
Benefits of unsecured loans are that they are usually more widely available, and offer a huge amount of flexibility in terms of loan amounts and repayment terms. There are also more and more lenders willing to consider those with less than perfect credit.
If you are successful in your application, then you will have to pay back interest on what you have borrowed as well as the original amount. Loans come with various Annual Percentage Rates (APRs) and it is this that determines the total amount that you will pay back. For example, an APR of 5.1% on a loan amount of £10,000 will result in a total repayment amount of £11,319.00 over a 5 year period. Paying the loan back over a shorter term will increase the monthly repayment, but will decrease the amount of interest paid and the total overall cost.
Things to consider-checklist
- Confirm that an unsecured loan is a better option than a secured loan. You will probably be able to borrow more with a secured loan, so working out exactly how much you want to borrow is a must.
- Do your research; find the best APR to best fit your circumstances. Be realistic though, if your credit rating is less than perfect, then expect to pay a higher rate.
- Look up your credit rating. It’s worth knowing in advance, and find out if an application will adversely affect it.
- Make sure you know the total amount repayable and the monthly repayments including all interest charges. Make sure you can afford them.
- Make sure you aware of any penalties or additional fees, such as set up cost, late or even early repayment penalties.
How do I apply for an unsecured loan?
All loan applications used to be made face to face, but nowadays it is easy enough to apply online or over the phone. It is worth getting your basic info together, such as home addresses for the past three years, bank account info, financial income and expenditure and employment details.