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Unsecured Loans

Oct 26, 2007
Unsecured loans are loans obtained from a bank or building society that have no security attached to them. They are usually for lesser amounts that secured loans typically are, often falling in the under 25,000 bracket. Instead of your home or other form of security being used to secure the loan, your earnings and credit history are used to make a decision.

Unsecured loans are sometimes called personal loans. They are not usually issued for anything of a speculative nature. They are also not usually given out for anything of a business nature either. These two activities both carry a greater risk factor, and lending institutions are usually not prepared to take the risk inherent in the situation.

Certain other activities may also be exempt from approval, depending on the actual circumstances. Things like the purchase of a time-share property, for example, may be viewed as too risky for the purposes of an unsecured loan.

Usually the first thing that anyone considering an unsecured loan will look at is the annual percentage rate, or APR. The APR may well differ, depending on how your application is made. You may find that making an online application will command a lower APR than an application made by telephone, or even face to face in the bank or building society premises.

The main reason for this is that online applications have been automated, which lower the lender's overheads. Because of this the savings realized by the lender can be passed on to you, the borrower.

The APR is not, unfortunately, a definitive thing. Lenders state the APR in different ways sometimes, and it's wise to be aware of this, as it will impact your bottom line when it comes to making repayments.

A fixed interest rate is probably the easiest to understand. It is fixed from the start and will stay exactly where it is for the duration of the loan period. Changes in the bank base rate will not affect a fixed interest rate. This makes budgeting for such an unsecured loan very easy.

A variable interest rate is one that is not tied to the bank base rate. It can vary depending on what the bank base rate is. Because of this your repayments can be more or less than usual. This kind of interest rate could make it difficult to budget for, as sudden sharp increases are not impossible, and could mean hardship for you.

There are also typical interest rates and set interest rates. A typical interest rate is merely an indication of what you can expect to receive. It is usually the rate that two thirds of successful applicants receive. This still leaves one third who did not receive this rate, though of course, some may have received even more attractive rates. A set rate is one where the interest rate is set as the one offered to all successful applicants. This will be without regard to any risk they may present, or even to the amount borrowed.

Unsecured loans are fairly easy to obtain if you have good credit history and your earnings appear stable and sufficient. Thousands of people apply for and receive unsecured loans every day.
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Money Only provide clear and impartial answers to anybody wishing to the best deals on unsecured loans in the UK.
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