Compare Unsecured Loans

What is an unsecured loan?

An unsecured loan is a type of borrowing that doesn’t require you to use an asset – such as your home – as collateral. As with most types of loan, you will need to repay the loan in full with interest, usually by making regular monthly payments to your lender. Unsecured loans are also referred to as personal loans.

You may find that you are able to borrow less money and at a higher interest rate than if you took out a secured loan. However, unsecured loans are also considered less risky because you aren’t putting an asset such as your house on the line as a guarantee.

How much can you borrow on an unsecured loan?

How much you can potentially borrow using an unsecured loan can vary between lenders, with each typically setting its own upper and lower limits. Generally, unsecured loans tend to be available for between £1,000 and £25,000. However, some lenders might allow you to borrow less and there are others who could potentially let you borrow more, perhaps as much as £50,000. Higher limits may also be available if you’re an existing customer of a bank or lender.

The amount that you specifically are allowed to borrow will depend on your financial situation and the repayments a lender thinks you’re able to afford. How you intend to use the loan might also affect how much you’re allowed to borrow.

You may only be offered the maximum loan amount if you have a good financial standing and credit score, and can prove that you’re able to easily afford the repayments required.

Taking the time to use a personal loan calculator can help you find out what you might be able to borrow and the monthly repayments you might need to make.

How much are unsecured loan rates?

Unsecured loan rates can differ between lenders. Interest rates can also vary according to the amount you want to borrow and for how long.

The interest rate you’re ultimately offered will also depend on your credit score and personal circumstances. Lenders look at your credit history to try to work out how much of a risk they are taking on if they lend to you. Generally, the lowest unsecured loan rates will be reserved for borrowers that a lender considers to represent the lowest risk.

What is an APR in relation to unsecured loans?

The annual percentage rate, or APR, is designed to help borrowers compare unsecured loans and their overall cost. Essentially, the APR shows the cost of borrowing a certain amount for a year, taking into account both the interest rate and any compulsory fees attached to the loan.

Lenders must inform you of the personal APR that you’ll be charged for a loan before you can agree to the loan. This will depend on the size and length of your loan, your personal circumstances and your credit rating.

Where you see a ‘representative APR’ advertised on a loan, this refers to the APR that at least 51% of those who apply for that specific loan will get. In turn, this means that 49% of applicants could be offered a higher APR than that which is being advertised.

Advantages and disadvantages of unsecured loans

There are various advantages of unsecured loans, but some potential disadvantages to be aware of too.

Pros

Some of the potential benefits of unsecured personal loans include that they:

• give you choice and flexibility over the loan amount and term
• can be used for a wide variety of purposes
• don’t require you to put forward an asset as security for the loan
• usually have a fixed interest rate, giving certainty over monthly repayment amounts
• can usually be applied for quickly, with lending decisions made in minutes
• will often deliver funds to your account the same or next day
• tend to be more widely available than secured loans

Cons

Some of the potential drawbacks of unsecured loans include that they:

• might require you to have a certain level of income to be eligible
• may be more difficult to get with bad credit or if you’re self-employed
• might not be available to you if you have a CCJ or have been declared bankrupt
• can’t be used for certain purposes, such as for buying property, investing or business reasons
• often have higher interest rates than an equivalent secured loan
• tend to offer smaller loan amounts and shorter repayment periods than secured loans
• may charge a fee if you want to repay the loan early

How do I apply for an unsecured loan?

Applying for an unsecured loan can be relatively straightforward if you meet the eligibility criteria for the loan and have certain information to hand. Typically, you’ll need to have ready:

• your personal details, including name, address and contact details
• proof of your identity, in the form of your driving licence or passport, and/or a bank statement or utility bill
• details relating to your financial situation, such as your monthly income and expenditure
• your employer’s address, if you’re employed
• your most recent accounts, if you’re self-employed
• details of any other loans or credit arrangements you might have
• your bank details

You should also be prepared for a lender to ask permission to conduct a hard credit check. This has the potential to affect your credit score, but is a necessary part of applying for a loan.

All of this information and your credit history will be used by the lender to determine whether you should be offered a loan and the interest rate you’d need to pay if you are.

How fast can I get an unsecured loan?

When you apply for an unsecured loan online, some lenders may decide whether to approve or reject your application in a matter of seconds, while others might take a few days. If you’re already a customer of the bank or lender you’re borrowing from, the approval process may be quicker.

If you get approval, it’s often possible the money will arrive in your account the same or next day.

Alternatives to unsecured loans

If you’re not sure whether an unsecured loan is right for you, or are struggling to get an unsecured loan, some of the potential alternatives you could explore include:

Secured loans

A secured loan requires you to put forward an asset that you own, often your house or car, as security against what you borrow. This safety net for the lender to fall back on if you don’t make your repayments means secured loans often come with lower interest rates and are available for larger amounts than unsecured loans. It may be easier to get a secured loan if you have bad credit as well. However, the risk to you as the borrower is that you could lose your asset to the lender if you fail to pay back when and what you should.

» COMPARE: Secured loans

Credit cards

With a 0% purchase credit card you can buy goods and services using the card and won’t be charged interest on what you spend for a set period of time. As long as you pay off what you owe before the interest-free period ends, it’s possible to borrow and avoid paying any interest at all. Be aware that high interest rates can start to apply if you don’t pay your card off in time and interest-free periods won’t be as long as the longest unsecured loans. You might also not be able to borrow as much on a credit card as you can with an unsecured loan.

» COMPARE: 0% purchase credit cards

Overdraft

If you only need to borrow a relatively small amount for a short period of time, you might want to consider using the overdraft on your bank account, if you have one. Importantly, you'll need to check if an overdraft facility is available and the rate of interest payable.

» COMPARE: Bank accounts with overdrafts

Guarantor loans

If you’re struggling to get approval for an unsecured loan, a guarantor loan might be another option. You’ll need a friend or family member to act as your guarantor and effectively promise to repay your loan if you don’t. This safety net for the lender means you might be allowed to borrow where you previously weren’t.

» COMPARE: Guarantor loans

Bad credit loans

When bad credit is preventing you from getting an unsecured loan, you may want to consider a bad credit loan. You can expect the interest rates on these loans to be much higher than if your credit was good but, in the right circumstances, it could provide the lending solution you need.

» COMPARE: Loans for bad credit

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

Failing to keep up with your unsecured loan repayments could result in your lender imposing missed payment fees or increasing your interest rate, and has the potential to damage your credit score. If you miss multiple repayments, the consequences could be even more serious, and might see you default on the loan. Your lender could start legal action against you and appoint a debt collection agency to try to recover what you owe. You could be issued with a CCJ too.