What are unsecured personal loans?
Personal loans are any consumer loan that is for personal (rather than business) use. You can use the proceeds of a personal loan for any purpose of your choice.
An unsecured loan means that you do not pledge anything as “security” to your loan provider, which you would have to allow them to take possession of in the event that you fail to keep up with your loan repayments. The idea is, if a customer does not repay what they owe, the loan company is still compensated because they get to keep the thing that was pledged as security instead. Standard “security” options for a loan are your house or your car.
Pros and cons of SECURED VS UNSECURED LOANS
UNSECURED LOANS
You can borrow less - usually between £1,000 and £25,000
You are less likely to be approved — as it’s a riskier product for the lender
If you don’t pay, you can be taken to court and get a CCJ on your credit file. If you can’t pay, you will have to be declared insolvent.
SECURED LOANS
You can borrow more – up to £100,000 since the lender has less risk of losing out
You are more likely to be approved as the stakes are higher for non-repayment
If you don’t pay, you can end up losing your house or your car…
Should I get a secured loan?
The obvious place to start is: do you have the necessary assets to act as security for the secured loan that you want? If you don’t have a house or car, then you probably won’t find any secured loans options are available to you.
Secondly, consider the risk of losing your car or house and the impact that might have on your life. It’s not a problem if you’re very confident that you can keep up with your loan repayments, however some people find the prospect too risky in case their circumstances change unexpectedly.
Are unsecured loans for you?
If you’ve decided on an unsecured personal loan, remember that the loan provider only has your promise to repay as evidence of your commitment to repaying the loan, so they will have stricter criteria that you need to fulfil before your loan can be approved. This will mostly be a good credit history, meaning you haven’t defaulted on credit repayments in the past and you don’t have too many other outstanding credit commitments and unpaid debts to service.
Living at the same address for a long period of time can also help you get accepted, as well as having good job security.
Your credit score may also affect your unsecured loan in terms of a poorer score meaning you are only approved for the loan at a higher interest than someone whose credit score is higher. This means you end up paying more overall for the same original loan amount.
Read more here about different types of high acceptance loans.
Are there other types of unsecured loans?
We mentioned that unsecured personal loans usually start from £1,000 and the period of repayment for a personal loan is usually somewhere between 1 and 7 years. Another option are credit products referred to as short term loans or payday loans. These types of loan can start from £100 and have loan terms as short as 1 day, so although the interest rate may be much higher for a payday loan, if you only need a much smaller amount over a smaller period of time, it can work out much cheaper.
Click here for more about our same day loans.
What type of unsecured loan should I choose?
PERSONAL LOAN
You can borrow from £1,000 to £25,000
Borrow for one to seven years
Usually an early repayment charge of around 2-3 months repayment amount
SHORT TERM LOAN
Borrow from £100 to £5,000 across varying types
Borrow for 3 months to 3 years across varying types
You can sometimes benefit from early repayment without charge
PAYDAY LOAN
You can borrow from £100 to £1,000
Borrow for 1 day to around 35 days
You can usually benefit from early repayment without charge
A higher interest rate on a much smaller loan amount, over a much shorter period, will cost you much less overall than a larger, longer loan that is more than you really need.
At cashasap.co.uk we do payday loans — repaid in a single payment on your next payday — and multi month loans which are repaid in 3 equal instalments over your next 3 pay dates.
