A Brief Guide to Unsecured Loans.

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Unsecured Loans up to £25,000

Whatever your circumstances

Understanding Unsecured Loans

A search for personal loans on any major search engine will yield results for a high number of unsecured loan deals. Which begs the question: 'Are unsecured loans and personal loans the same thing?' However, the answer is actually no. It's easy to think that personal loans and unsecured loans could be the same thing, but they aren't.

The industry uses the term 'personal loans' quite vaguely. Personal loans are loans taken out for personal reasons, so they're different to business loans, car finance loans or other sorts of lending. However, personal loans are any loans which we take out for our own personal spending.

It's possible to take out personal loans which are secured or unsecured. You can spend both of these types of personal loan however you like. There are also several different types of secured and unsecured personal loan available, so in this article we'll take a look at the different types of personal loan out there.

Difference between Secured Loans and Unsecured Loans

Secured loans are 'secured' against an asset, such as a home. This means that if you don't keep up with repayments on a secured loan, that asset (usually a property) can then be at risk. There are two specific reasons why lenders like secured loans.

The first and most obvious reason is that the lender is guaranteed to get their money back. In the event that the borrower cannot or will not repay the loan, the lender can always take the asset which the loan was secured upon in order to recover funds. That's bad for the borrower as they could lose their home or car, but it's good for the lender who won't be taking any risks by lending money to them.

The second reason why many lenders like secured loans is because with secured loans they can provide customers with more attractive deals that have lower interest rates and better payment periods. This in turn makes their products more appealing and more popular. Secured lenders can offer better deals to their customer due to the reduced risk of borrowers defaulting on payments. People tend to take secured loans far more seriously and make repayments in full and on time, while they can be less reliable when it comes to unsecured loans.

Unsecured Personal Loans

Like secured loans, unsecured loans can be used for any purchases but unlike their secured counterparts, unsecured loans are not secured against a property or other assets. So, in principle there's no risk of a borrower losing their home.

However, in practice people can still lose their homes with unsecured loans too. This is due to widely used fine print called 'Charging Orders'. Charging Orders allow lenders to reclaim unpaid debts on unsecured loans by forcing the sale of any assets which a defaulting borrower owns.

Generally, people borrowing money as an unsecured personal loan might not have any assets at all such as a car or house and in these cases people who default will still be taken to court if they refuse to repay their loans. This is still the case even if Charging Orders won't affect them because the lenders will still need to get back the money they lent.

If you find yourself defaulting on an unsecured loan you should still take the matter very seriously and try to reach agreements on when and how you will repay your debts. You can also get debt advice from a number of reputable organisations.

Unsecured loans – Banks and other Lenders

Finding the right unsecured loan can be a fairly intimidating process, there are a diverse range of products to choose from, varying loan types, and amounts, rates of interest, fees and conditions.

Many people find that they are unable to obtain from a High Street Bank and have to look at a different solution, at Unsecured Loans for You; we have a panel of lenders which can offer an alternative answer when it comes to consumer borrowing.

Banks often require applicants to have near perfect credit to obtain an unsecured loan or secured loan, as a broker, we can help our customers obtain finance through a progressive process.

Taking out any kind of finance is a big commitment and before applying for a loan, you should always take careful consideration, even if you are need the loan quickly for unforeseen circumstances.

Make a clear analysis of the situation, why you need the loan, can you afford the repayments, maybe do what’s known as an ‘income and expenditure’ sheet to get a clear indication of your position. Even in desperate times, it is important to know the impact of taking out a loan on your finances.

Again, it is important to understand how much you need to borrow, just as much as it is to understand why you require the loan in the first place.

Evaluate how much money you need, if for example you want to buy a car, maybe consider the cost of vehicle, and also factor in the insurance premium and road tax. Once you know the exact figure you need to have access to, it will help with your search.

Always look to borrow what you need, by taking out more than you require, it will just result in repaying more to the lender.

As a broker, we have a panel of lenders who offer a diverse range of unsecured loans at different rates of interest; we give our applicants the opportunity to choose which lender will be best suited to their needs once they have gone through the underwriting procedure.

As previously explained in ‘Question 1’, it is worth making a note of your ‘income and expenditure’, this will give you the peace of mind of knowing what you have to pay and on what date.

Not all lenders are the same, however, if you get your salary on a certain date each month, perhaps arrange the loan payment to go out around that date.

Please be aware, once a loan repayment has been set; ensure you have the funds available to meet the disbursement on time as late repayments may result in late fees.

An unsecured loan is not secured against collateral in the same way a secured loan can be safeguarded against an item of value such as your property. Therefore an unsecured loan is considered to be a greater risk to a lender and this is usually reflected in the interest rates on offer when it comes to unsecured loans and secured loans.

What is important to remember is that just because a secured loan may represent a lower interest rate, failure to repay the loan may result in the loss of an asset such as a property or vehicle. It is always extremely vital to look at all pros and cons of any kind of loan before making that final decision.

As time and circumstances change, what was once affordable can become a millstone. No matter whether it is a long term illness, redundancy or just a change of personal circumstance that drives it; if you have insufficient monthly income to pay all the bills it could be time to look at ways to reduce some of those obligations.

The first step is to complete a full and honest budget of all monthly income and expenditure. And don't forget to allow for those infrequent bills like car road tax, TV licence or telephone bills. Once you have a clear picture of what you have in terms of commitments and income, then you can start planning how to reduce some of the variable costs like loan repayments.

It is crucial that you continue to try make payments on time so as to keep your credit history as clean as possible. This will make your proposition to lenders far more appealing than if you have started to miss payments since this will automatically show on your credit history report.

Now you have a full and realistic picture of what you can afford each month in terms of payments you are in a good position to approach your lenders and discuss how you might change the payments to make them more affordable.

Think carefully about which loan repayments would, if changed, have the most beneficial effect on your monthly budget. What you are trying to achieve is a balance between paying off the debt in as short a period as makes sense whilst making sure that it is comfortably affordable. Where loans have a short period to run (say less than 4 months) it will not usually be worthwhile trying to change their payment profile since there are likely to be fees involved that may outweigh any benefit. However, if these are substantial payments then looking to re-schedule them over a longer period may have the desired effect. Equally, if you have very high interest bearing loans then asking to have them rescheduled may be very expensive in the long run.

If you feel that you can get back under control by changing one or two commitments then approach your lender and ask what can be done. This is best done on the telephone since there will inevitably be some discussion over options but you should always get a written quotation for any variation of payment terms discussed before you agree to them. Your lender is not under any obligation to vary the payment terms but most will accommodate a change that they can see will be to their advantage as much as it is to yours.

If the loan repayments you are looking to reduce are for your home mortgage then you should definitely make an appointment, where practical, to meet with your lender. Take in your budget and explain what you are seeking to achieve and they will listen sympathetically to your request. Once again, this is best done whilst you are up to date with your repayments as it shows that you are in control and thinking about your situation before it becomes a problem. Lenders do not like surprises – especially bad ones!

If you have a number of loans and there is no simple or easy way to reduce your monthly payments then it may be worthwhile looking at a debt consolidation loan. Here you will apply for a brand new loan and use the proceeds to pay off all your other creditors. This way you can reduce all your various monthly payments to one single amount over a sensible period and, provided your credit history is intact, at a sensible rate. To do this you should get settlement figures from each of your creditors so you know what sort of loan amount you will need. If the total is over £10,000, you may need to consider a loan that is secured against your home (if you have that amount of free equity available). Therefore, one of the first ports of call may well be your existing mortgage lender to see if they will advance further money against the value of your house. This can be one of the cheapest and most effective ways of paying off debt in an affordable way. Be warned, however, that the payments may be low but the total amount repaid could be high since the repayment period is long.

Lenders will always be sympathetic to requests for a change in payment provided you are proactive, supply plenty of information on your personal circumstances and keep your account up to date at the time of the request. They will also help if you get into arrears but by then you will already be incurring late charges and have less bargaining power.

When it comes to borrowing, an applicant’s choices are generally controlled by their assets and credit scores. If for example you are considering a secured loan, you will need to know if you have enough collateral to borrow against.

It’s always a good idea to obtain a copy of your credit file from Experian, Equifax, Callcredit, or even all three. Your credit file will give you details of each credit account you have and also an indication your mortgage balance.

There are many variables a lender will consider when considering an application, it makes sense that you have a good understanding of your credit status, especially prior to making an application.

When it comes to getting a loan you need to make sure that you understand all the options available before selecting which type to apply for.

There are four basic types of loan; secured, unsecured, fixed rate and variable rate. Understanding the implications of each of these can make a big difference to how much you pay and the consequences if things were to go wrong.

Secured loans are those where some form of security is pledged to the lender as surety for the loan. In the event that you fail to pay, the lender can seize the assets pledged and sell them to pay off your loan balance. The security pledged is often your home (if you own it) but it can be anything of measurable and saleable value such as jewellery, artworks or even a car.

Unsecured loans are the most common way of borrowing small to medium amounts of money. They involve no security being pledged and rely on your promise to repay over a period of time. Failure to repay may lead to you being sued in court with an enforcement action leading to some of your assets being taken to be sold to pay off your debt.

Usually, it is possible to borrow up to £15,000 without having to pledge security although this amount will vary dependent upon your personal circumstances. With a high household income and a good credit history, you may be able to borrow a lot more on an unsecured basis. If you have a low household income and/or a poor credit history then you may find it difficult to borrow even small amounts of money on an unsecured basis.

Therefore, before embarking upon applying for an unsecured loan, it makes sense to check your credit history to make sure it is accurate and as clean as it can be. You can check your credit file through one of the main bureaus such as Experian, Equifax or Callcredit. Most offer a free one month trial of their credit checking tool so you can see what is held on you and how it may affect your loan application.

Once you have made sure that your credit history is as good as you can make it you need to work out your family budget and what you can afford to pay as a monthly instalment. This will act as a rough guide to the amount that you can sensibly borrow. Make sure not to use all the spare monthly cash as repayment since you need to have a buffer to cover unexpected costs as they arise from month to month.

Most unsecured loans with a repayment period of up to 5 years will be fixed rate. This means that the amount of interest that you will repay is fixed from the outset and the monthly payment will not change. It is possible to get fixed rate loans of up to 10 years but these will be for larger amounts. Loans of over 7 years will almost certainly be offered on a variable rate basis. This means that the rate of interest charged will vary with the underlying cost of money on the wholesale banking markets. Therefore, if general interest rates rise, the amount of interest you will pay on the balance outstanding will increase. On the other hand, if interest rates fall, you will benefit from lower interest charges. So, if you have the option, it may be worth looking at taking out a variable rate loan if interest rates are high and expected to fall over the life of the loan. With low general interest rates then a fixed rate loan not only provides certainty of monthly payment but should lead to lower interest rates being paid on the amount borrowed.

One advantage of a variable rate loan is that there are generally no early termination charges payable. With a fixed rate loan, you will have to pay a number of months interest as a penalty should you wish to settle early.

Even with an unsecured loan you may be asked to provide a co-borrower or guarantor. This is a credit enhancement requirement by the lender to make the credit quality better for them. This means that, should you default, your co-borrower or guarantor can be pursued for the debt as well as you. So if you are asking someone to be your guarantor, make sure that they fully understand what they are signing up for.

Advantages

  • Quicker, more simple application process than a secured loan with the funds in your account quite quickly.
  • More beneficial to those looking for smaller amounts over shorter terms.
  • Unsecured Loans are extremely flexible and offer many options to best suit individual financial circumstances.
  • Usually options to repay the loan early, thus reducing overall interest charges and total amount borrowed.
  • Unsecured Loans market is very competitive and lenders are offering better deals.

Disadvantages

  • Anyone with an adverse credit history or a history of missed repayments may struggle to obtain an Unsecured Loan.
  • Unsecured Loans not ideal if you wish to borrow a high loan amount.
  • Any missed repayments will be marked on your credit file, and may affect your ability to obtain credit in the future.
  • Not an ideal loan if you already have a lot of debt, as it may lead to increased financial pressure.

Loans up to £25,000

Whatever your circumstances

  • Loans up to £25,000
  • Loans for any purpose
  • No complicated forms
  • No 'Up-Front' fees

44.9% APR representative (unsecured)

Representative Example:
Borrowing £4,500 over 60 months. Repaying £167.63 per month. Total repayable £10,057.50. Annual interest rate is 44.9% fixed.

WARNING - LATE REPAYMENTS CAN CAUSE YOU SERIOUS MONEY PROBLEMS. FOR HELP GO TO WWW.MONEYADVICESERVICE.ORG.UK

First Stop Everyday Loans TFS Loans Bamboo Finance UK Credit Amigo Loans On Stride Financial Trust Two Progressive Money

*Unsecured loans are available to a maximum of £25,000. Loans of up to £100,000 may
be offered by the lenders subject to affordability and secured against your property.
Typical Example for illustration purposes only: £25,000 over 10 years with 7.8% APR, Total to repay: £35,664, Monthly Repayment: £297.20.
Overall cost for comparison is 5.5% APR typical. Overall cost for comparison for unsecured loans is 22.1% APR typical.
Unsecured Loan Typical Example for illustration purposes only: Borrowing £4500 over 60 months. Repaying £167.63 per month.
Total repayable £10,057.50. Annual Interest Rate of 44.9% fixed.

This article is intended to provide information only, and does not constitute financial advice or assistance, without limitation, warranties as to satisfactory quality, fitness for purpose, accuracy or skill. The information contained in this article is generic and non-specific to your own individual circumstances or anyone else.

THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.

WARNING - LATE REPAYMENTS CAN CAUSE YOU SERIOUS MONEY PROBLEMS. FOR HELP GO TO:

The Money Advice Service

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