Unsecured loans with a personal touch

Personal loans can also be referred to as unsecured loans, but does one name appeal to you more than the other? Personal sounds more endearing and considerate, whilst anything that is unsecured sounds, well, a less appealing proposition. However you refer to them, it may be worth getting a better understating of the UK’s unsecured loans market before you decide if it is right for you.

Personal loans are a way of lending money from any financial institution, which is traditionally a bank or building society. As the customer you are in a position to choose the amount you wish to borrow, and over what period of time. In the UK personal loans start from £1,000 and the maximum is now anything from £35,000-£50,000. Most loans must be paid back within a 7 year period, but for the larger amounts some lenders have extended this to 10 years. These are all important factors as the amount and term you borrow over will impact upon the APR that the lender offers.

Repayments are made on a monthly basis, and contain both a capital and interest amount, and are structured in such a way that the loan is guaranteed to have been paid off if repayments are made on time. Also, after being approved for the loan application, and subsequently paid out, you will be allowed a 14-day ‘cooling off’ period in which you can cancel the agreement should you change your mind.

Another major factor when establishing which APR a lender will offer you is your credit rating. It also of course dictates if you will even be eligible for the loan in the first place. Some people are better at paying off their debts than others and this is evident on a credit report which is based on your last 6 years financial activity.

In general the higher the credit score, the lower the APR should be that is attached to the loan, and vice versa. However each individual lender has their own unique criteria when assessing your loan application but credit rating is still the single most important factor, especially in relation to unsecured loans.

You can get a copy of your credit file from any of the big main 3 credit reference agencies in the UK (Experian, Callcredit and Equifax), or maybe use a credit score tracker like Noddle, who provide it for free.  However remember that credit scores do differ across agencies who all adopt different criteria.

Advantages v Disadvantages

Unsecured loans are a quicker and more efficient way of getting your hands on a loan.  Nowadays, finance lenders and brokers have online tools and platforms that speed up the whole application process without the delay of administrative red tape. There are also an extensive range of products to match those with a less than perfect credit rating.

There is also more flexibility with a personal loan, and not just in terms of the amount you borrow and the loan term. You are generally able to make overpayments and early settlements with your lender, sometimes without incurring any early repayment fees or charges. Some lenders may also offer other incentives, such as the option of payment holidays to best suit customer needs.

In terms of disadvantages, just ensure that you read all the small print and ask lots of questions if you are unsure. Some lenders do charge additional fees for administrative tasks, and any amendments or changes you may want to make. The representative APRs may also be different from what was initially quoted in a “soft search”, so again just ensure you have all the facts before making a decision.

The main issue however is still the relevance of your personal credit score. Any blips on your credit file, can mean issues for a long time and you may end up paying a higher rate of interest as a result. So always try and make repayments on time and try and make sure that the financial information on your credit file is accurate and up to date. Credit scores don’t improve overnight, but they can be worked on over time. Even consider opening credit rebuilder products such as a secured credit card or guarantor card.

So in terms of shopping around for personalised unsecured loan quotes, where is the best place to start? Nowadays most people start online, the introduction of excellent websites that offer quick approval times and same days funds transfer has revolutionised what was once a red tape exercise. Price comparison sites are a good way of obtaining an immediate snapshot of whish products are currently out there, and comparing them against each other so you can easily see which product benefits you the most. The introduction of broker sites has also helped more people than before obtain unsecured loans, even if they have a poor credit rating. Underwriting systems and the panel of lenders that brokers have means that they can quickly assess your application and then very quickly let you know which of their panel you have been matched to.

So once you have your options, or maybe just one option, be careful to check the small print and terms and conditions. Ensure that the loan quote doesn’t leave a footprint on your credit file as you may look slightly desperate, yet gather as many quotes as you can so you can establish what is the most likely rate you will be offered.

Once you know your APR and terms, it’s time to be realistic with yourself. Can you afford the monthly repayments? Is it too much pressure on the monthly budget? Do I really need this loan am I going to use the money constructively? Can I ensure that I can make the repayments for the whole duration of the loan?  If the answers are positive on all four fronts, you’re good to go. And don’t harbour too many doubts about your decisions, unsecured loans are an excellent product and help millions of people.