The basics of borrowing and the best unsecured loans tips

Unsecured loans can provide an affordable way of borrowing whether you want to revamp your home or finally go on that holiday of a lifetime.  These loans are “unsecured” which allows the borrower to lend funds without using their property to guarantee repayments.

Unsecured loans are an extremely flexible means of borrowing anything up to £50,000 over a period of time form 1-10 years. This flexibility means that you can specifically tailor the amount you borrow, the loan time period, and more importantly the monthly repayments to best fit your income and personal circumstances at that particular time.

So, if you plan your finances correctly and find the best unsecured loan to suit your circumstances, they can be used for a broad range of things, even as unsecured debt consolidation loans to amalgamate existing debts.

There are a number of lenders on the market, each with different criteria and eligibility checks, and depending on how high a risk you are, different interest rates. Generally the higher risk that the lender deems you to be, the higher the interest rate charged. If you have a good credit history you are likely to qualify for the best unsecured loans and headline rates offered by lenders, as they need surety that you will meet your repayments. Furthermore, the interest rate on your loan will depend on the amount that you borrow, with larger amounts generally attracting a lower rate of interest.

Unsecured loans for those with poor or bad credit do exist, and indeed this sector of the market continues to flourish as banks and building societies look to tighten up on lending.

Fixed rate interest loans are the most common type of unsecured loan, with the loan amount and total interest payable divided evenly over the term, to create your monthly repayment.  This option thus ensures that the borrowers can plan how much they can afford to pay back each month, and not overstretch and borrow too much. The interest rate being fixed also means that monthly repayments remain the same, irrespective of any interest rate fluctuations. It allows the borrower to plan and maintain a repayment schedule.

When considering your fixed unsecured loan options it is always a good idea to use any online tools provided, such as a repayment calculator or affordability checkers, which can give you rough guides and estimates. Remember however that the figures are only estimates based on the lenders typical APR and your repayments may differ depending on the interest rate offered and the amount you wish to borrow, and for how long.

You should also compare unsecured loans online based on whether they offer any repayment holidays during the term of the loan, or whether they impose any charges for early repayment if you feel these are likely to be factors.

Another unsecured loan worth considering, may be a flexible loan, which are offered by some unsecured loans providers, but are less commonly known and usually come in two formats.

They either allow you to specify a maximum borrowing amount but don’t require you to take all of the money at once. Instead you only withdraw the amount that you need at that time, and so only pay interest on this amount. These types of loans are useful for long term projects such as a house renovation or building projects. However, more commonly flexible unsecured loans will lend you a fixed amount upfront then give you the option to repay your borrowing early or make overpayments as you see fit, sometimes without any penalties.

These flexible loans often have a minimum amount to be repaid each month but accept greater repayments without charges. However, flexible loans usually charge higher interest rates, but do give you the freedom to decide how soon you repay.

By comparing the monthly repayments, additional features and any additional charges or fees offered by different unsecured loan providers you can find the best unsecured loan for your circumstances.  Always prioritise your needs, cheap interest rates are important but you may decide that repayment holidays or other clauses are worth paying a little extra for, as they may suit your circumstances better.

A lot of unsecured loans are now offered through an online unsecured loan broker who may be able to offer a number of different options depending on your individual circumstances. Online brokers usually have extensive panels of lenders that can cover most financial circumstances.

By taking into account all of these factors, you should be able to borrow the amount you require and repay it over a period of your choice, in repayments that fit with your lifestyle even if you have a history of bad credit.

If you have a bad credit history, for example, you may be able to get an unsecured loan by nominating a homeowner guarantor. However, those with a very poor credit history who have been refused unsecured borrowing may find that a secured loan may give them more options for their borrowing.