Unsecured Loans

If you're looking to apply for a great unsecured loan deal, you've come to the right place. Additionally, if you're also looking for some information with regards to this specific type of loan, our resource guide contains a wealth of information for your review.

What are Unsecured Loans?

As the name suggests an unsecured loan is essentially any type of personal loan, which is issued on the understanding that no form of security or collateral is to be offered as part of the agreement. For this reason, it is usually of paramount importance for a borrower to demonstrate that he or she has a superb history of credit, as any potential risk factor for the lender will be markedly increased.

Unlike secured loans, comparatively there are actually very few specialist lenders within the UK who offer unsecured loans as part of their product range. Typically the vast majority of applicants will place a request with their Bank in the first instance, however if they are refused the loan and/or are not happy with the plan that is offered to them, it is then common practice for such applicants to seek help from alternative lending institutions.

The advantages of Unsecured Loans

Most unsecured loan applicants consider the lack of requirement for security as being the major plus point when referring to this particular type of finance. If an individual were to default, miss repayments or simply became unable to meet the terms of the loan, their home or any other asset registered in their name would not be at risk. However, by absolutely no means should any unsecured loan applicant consider the aforementioned as a benefit in itself or view the very nature of such a loan light-heartedly, for the simple reason that there are still very serious detriments to be absorbed, should the term of the loan not be met.

Another benefit commonly associated with any unsecured credit agreement is speed. As unsecured loans do not require the applicant to offer collateral against the lend, essential secured loan processes such as property valuations, land registrations and consideration periods are omitted. Such processes can take some time to complete and as a result may delay the speed in which applicants receive their loan.

The disadvantages of Unsecured Loans

One of the most prominent disadvantages that many applicants looking for an unsecured loan will usually encounter relates to the restrictions which are placed on the actual amount that can be borrowed. As previously mentioned within this guide, unsecured loans are often viewed as a high-risk proposition due to the fact that no form of security is tied to the funds. For this reason, very few (if any) lenders will be prepared to offer a large value loan (typically in excess of £10,000) regardless as to whether the borrower has a positive credit and repayment history. It is also fairly common for lenders to restrict the term of the loan, often requiring the borrower to repay the finance in a far shorter space of time than say with that of a secured loan. For many borrowers this type of restriction can often make the loan less manageable which can subsequently make the proposition less attractive as a result.

The third and final disadvantage with an unsecured loan stems from the lack of options available to individuals who are classed as having bad credit. As mentioned within our secured loans guide, having bad credit is considerably less restrictive to the borrower if they have some form of collateral to offer against the funds. However, as an unsecured borrower is either unable or unwilling to offer collateral, the risk presented to a prospective lender is substantially increased. For this reason, bad credit unsecured loan borrowers will either find that sourcing a lender willing to cater for their needs is difficult or if they are successful in finding a lender, it is likely that the loan rate and term offered to them is either impractical or unaffordable.

Factors to consider when applying for Unsecured Loans

Although we have already covered the vast majority of factors for which any unsecured loan applicant may need to consider before submitting an application, it may be worth quickly reviewing the following points once more:

• Loan Amount - If your goal is to acquire a high value loan there are currently few specialist lenders within the UK who will be able to assist. Your best alternative may be to approach your own bank or building society, or maybe even consider another form of finance altogether.
• Loan Term - Unsecured loans typically run for shorter periods of time. If you're looking to stretch your repayment term over many years, this type of finance may not suit you're requirements.
• Credit History - The success of your application and indeed the product in which you are offered, will be very much dependant on your previous credit history. If you feel as though your credit history may have been disturbed in the past, your chances of success may be low.
• Employment Status - Again due to the fact that an unsecured loan is considered to be high risk by default, certain employment and personal income scenarios such as self-employment, unemployment or claiming benefits may have a sizeable bearing on the decision making process.