An unsecured or personal loan is a loan not ‘secured’ by an asset. Because it’s not secured, for example, against your car or home, it’s considered a higher risk by lenders compared to a Secured Loan.
As a result, Interest Rates tend to be higher, and the amount you can borrow lower.
Unsecured loans work in a similar way to secured loans, whereby you borrow money from a lender and agree to make regular Monthly Payments, until it’s paid in full.
They differ in that, because an unsecured loan has no collateral, your application is based entirely on your Credit Score and affordability.
As such, unsecured loans tend to require a higher credit rating as the lender cannot guarantee they will recover the debt, if the customer fails to repay the loan.
The repayment period (or Term Length) of an unsecured loan can be more flexible, ranging from 1 month to a number of years, than its secured counterpart.
And, with an unsecured loan you don’t risk losing a secured asset, if you’re unable to repay the loan.
However, falling behind on payments could still affect your credit rating and may result in late payment charges.
Unsecured loans are typically only available with a good credit score, if you have Bad Credit and a poor credit rating, it can be harder to get approval.
Because there’s no collateral, they are considered more of a risk by lenders, which means interest rates tend to be higher and you’re more restricted by how much you can borrow.
If you are accepted by a bank or lender, you will usually have to pay back interest on what you have borrowed as well as the sum itself.
Loans come with a fixed Annual Percentage Rate (APR) and this figure determines what the loan will cost over time.
All loans will quote a Representative APR. This is the interest rate offered to at least 51% of customers.
The APR your offered might be different from the Representative APR.
That's because each application is treated on an individual basis and the rate offered depends on a number of factors, including your personal circumstances and credit rating.
No. Typically unsecured loans are only available to individuals with good credit.
However, secured car loans are often available to a wider range of credit profiles, including those with bad credit.
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