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Unsecured Loans from UK Lenders

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Unsecured Loans UK

If you’re planning to take out an unsecured loan it pays to shop around by comparing offers from different lenders, because interest rates on unsecured personal loans can vary quite a bit from one lender to another.

A range of factors will affect the APR you’re offered when you’re taking out a new unsecured loan, particularly your credit history, whether or not you’ve missed any repayments in the past five years, and how much debt you already have.

The particular lender you decide to go with can affect the interest rate you pay as well though, which is why it’s always a good idea to shop around by comparing unsecured loan offers from a range of different lenders.

What is an unsecured loan?

Unsecured personal loans are loans that are not secured against any assets, such as your vehicle or home, reducing the risk to insurers but limiting borrowing limits and resulting in higher interest rates. Lenders assess applicants’ eligibility and interest rates, and if approved, the money will then be transferred to your nominated bank account. The borrower pays back the loan in fixed monthly instalments until the debt is cleared. Credit history plays a crucial role in obtaining a personal loan, as it influences the lender’s approval process and the unsecured loan rates offered.

Unsecured vs secured loan

When taking out unsecured bank loans your assets will be protected if you run into financial difficulties. Secured loans on the other hand are less risky for lenders as essentially they can take possession of the asset if you don’t meet repayments.

Secured loans allow for larger loans over longer periods at potentially lower interest rates. However, spreading payments over a longer period may result in you paying higher interest rates.

Are unsecured loans more expensive than secured loans?

Interest rates can vary considerably from one lender to the next, but in most cases unsecured loans will carry a higher interest rate than a secured loan from the same lender might offer.

The reason for that is that unsecured loans aren’t secured against any type of asset (eg a house or a car), which means they represent a higher risk to the lender than secured loans. In most cases unsecured loans will therefore carry higher interest rates to reflect this elevated risk.

Why should I choose an unsecured loan?

Unsecured loans can offer you a flexible alternative to credit cards, suitable for those without home ownership. Unsecured bank loans typically range from £1,000 to £25,000, with fixed payment plans of varying time frames offered by lenders. Unsecured loans typically have a fixed repayment period of up to a maximum of 10 years, allowing you the flexibility to choose your repayment period. Secured loans will also typically be able to lend up to £100,000 or more.

Note: Opting for a longer repayment period can result in higher interest rates, so be sure to look at the long-term costs of repaying your loan.

Who is eligible for an unsecured loan?

Typically, the main criteria amongst UK lenders for who can take out an unsecured loan is simply to be a UK resident and over the age of 18. You will also need to produce proof of income to show what loan you will realistically be able to afford.

Here are the main ways you can increase your chances of being offered a competitive unsecured loan:

  • Having a good credit score – Since the lender will not being securing an asset against the loan, they will be more reluctant to lend to those with poorer credit scores.
  • Have proof of address and residency – Lenders will need to verify where you are based.
  • Be employed – You’ll need to produce proof of your income in order to verify you can afford the loan

What happens if you don’t pay back an unsecured loan UK?

Not paying your unsecured loan can come with a range of negative impacts. If you miss a payment on your loan, you will be charged additional fees, plus interest. Your credit score will also be negatively impacted by missed payments as your lender will inform credit reference agencies about your missed payments. This can make it harder to get future credit and loans in future.

If you continually miss payments, you may be issued with a county court judgment (CJJ) by the lender. If you default on your loan, the debt will be referred to a debt collection agency.

What are the benefits of an unsecured personal loan?

The main benefit of an unsecured loan is that you will not be required to secure the loan against an asset. There are also other practical benefits to taking out an unsecured loan.

  • You’ll typically have the loan transferred to your bank account within a few working days
  • Predictable Repayment Schedule
  • Ability to build up a better credit score
  • Easier accessibility to those without assets

What are the drawbacks of an unsecured loan?

Unsecured loans have a few more restrictions and drawbacks when compared to secured loans.  Typically Unsecured loans will have the following:

  • A higher interest rate – This is due to the fact the loan will not be secured against a collateral, making the loan more expensive overall.
  • More difficult eligibility criteria – Due to the fact there will be no assets to secure the loan against, lenders are more cautious with whom they give an unsecured loan. This means you will usually be required to have a good or excellent credit score to be accepted for larger loans.
  • Early payment fees – Some lenders may charge you fees if you pay back your debt faster than the agreed time frame.

Can I get an unsecured loan with bad credit?

Getting an unsecured loan with a bad credit score can prove to be challenging, however the good news is it is not impossible. There are still some actions you can take to improve your credit score and reduce your risk to lenders.

  • Getting a Guarantor loan
  • Opt for a secure loan 
  • Build your credit score before applying for a loan

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