Unsecured loans are available to both homeowners and tenants, due to them not being secured against any asset. Any loan which is issued without the need for collateral will be referred to as an unsecured loan, as opposed to secured loans or mortgages which are registered against a property, and secured by the way of a legal charge. When searching for an unsecured loan it is important that you think carefully to determine whether you can afford the repayments. As with any credit agreement, failure to keep up repayments on an unsecured loan will have a negative impact in your credit file. Lenders will register your payment history with one or more of the credit reference agencies, so it is vital you pay on time and in full to keep hold of (or start to rebuild) your good credit score. Future lenders will take a look at your credit file when making a decision whether to lend to you or not.
Unsecured loans are available for any purpose. Whether it is for consolidation of other outstanding debts, or for a one of purchase, there will be a lender who will look at your application for you. The better your credit rating, the more lenders will be available to you, and you are likely to get offered a better interest rate. There are lenders out there however who will consider all circumstances, even if you have had issues with your credit in the past. Please read Unsecured Loan Advantages and Disadvantages before applying.
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be careful as building up debt can start to cause problems if the new borrowing is unaffordable. Do your sums, have a good look at your income and outgoings and make sure you know exactly how much you can afford in monthly repayments. It’s also important to only take as much as you need. An unsecured loan should be kept to a minimum, and paid off as soon as is comfortable. Effective budgeting gives you the best chance of paying the loan back at a rate affordable to you, which will in turn mean you improve your credit score along the way. Over borrowing can cause uncontrollable debts and non repayment of your loan can have a negative impact on your credit file.
Do thorough research before taking an unsecured loan. Check your budget and know exactly what your financial situation is. Ask yourself if you really need to acquire an unsecured loan? Unsecured loans can be a great tool for many different purposes, but it is vitally important to ensure that it is the correct decision before deciding to go ahead. For instance, having the debt spread over a longer time decreases the repayments but the overall cost of the borrowing will increase due to the interest portion of the repayments. If £10,000 is borrowed at 7%, over three years and the interest will be £1,100, over ten years it would be £3,900. Also bear in mind before you apply that if you have had credit issues in the past, you may not receive the advertised interest rates on an unsecured loan or even be granted a loan.
There are a whole range of loan companies in today’s market, catering for people with all circumstances. Many stipulate that a borrower is a permanent UK resident and over the age of 21 years. Stay away from lenders who charge a penalty for paying off the loan early. Lenders who operate in this way are reducing in numbers, and you will probably find that most will now let you pay off early with no financial detriment to you. The interest is generally calculated daily, therefore you will only pay interest on the loan balance for the period of time it is owed. Paying early, or making extra payments over and above the ones you are contracted to may save you money on the cost of the borrowing.
The majority of lenders offer unsecured loans from £1,000 and £25,000, but they will all have different criteria and different upper limits. You will generally need a secured loan if you want to borrow more than £25,000. There are many places you can apply to for an unsecured loan. These include high street banks, building societies, credit unions, online lenders and doorstep lenders. Shop around online or apply to a loan broker who can search the market for you. Doorstep lenders tend to charge very high interest rates, but provide a service to customers who may not be able to borrow the cash they need from more mainstream lenders. It is possible to borrow small amounts from them but with their interest rates being quite high, it will cost you more in the long run. Consider Credit Unions as most charge only a small percentage of interest per month on the reducing balance. They offer unsecured loans for up to five years.
If it becomes difficult to pay off your loan, hard to meet payments contact your lender immediately.
Banks and building societies are often willing to help and may offer to freeze the loan temporarily or lengthen the repayment period. It is in their best interest to acquire their money and they will often look to reschedule rather than take action. It is important for lenders to “Treat Customers Fairly” when providing a loan to them. This means that they will do everything they can to help a customer in need, and especially those who have fallen in to financial hardship due to an unexpected life event like losing a job or a relationship break up.
If you do fall into financial hardship and need somewhere to turn, the Money Advice Service website is packed full of useful tips and advice on money management, including where to go to get free debt advice both over the phone and face to face. Their website is www.moneyadviceservice.org.uk.
You should think carefully before opting for an unsecured loan.