The term Unsecured Loan covers a variety of credit options including bank loans, credit cards and overdrafts. It is normally used to describe the type of loan you get from a bank or building society though. Unsecured loans don’t require an asset or assets as security and the decision to award the loan is based solely on your credit rating and your financial status i.e. the stability of your employment. The Benefits of an Unsecured Loan An unsecured loan is a great way to consolidate your current debts so that you pay less interest in the long run. People who choose to apply for an unsecured loan often have a variety of credit cards already running and maybe an overdraft as well. By taking out a loan that covers them all you can pay them off and have one smaller payment to meet each month. Unsecured loans nearly always have a lower interest rate than the top credit cards as well. This means you still save money even if you have the loan over a longer period of time but by doing this you get the opportunity to pay much less per month. The Drawbacks of Unsecured Loans Because unsecured loans have no security attached to them they are harder to obtain than secured loans. To be accepted by a bank or building society you have to have been with the bank/building society for a good number of years. You also need to have a current account that is in credit most of the time and an excellent credit score. Payday loan companies and credit card providers are a bit more lenient however their APR for interest is always considerably higher. Other drawbacks of these loans include the fees and charges that can be incurred when payments are missed. There are also those that you have to pay if you choose to repay the full amount of the loan early. Should you be unfortunate enough to loose your job, you’re still liable for the payments and so it is often worth taking out some form of income protection plan at the same time. This is especially so if the loan amount is considerable. The Rates of Interest on Unsecured Loans The interest rates on unsecured loans are generally higher than those of secured loans but lower than those of credit cards and payday loans. In addition, each lender usually has a tier system for their interest rates. This means that if you borrow between £5,000 and £9,999 you may pay 12.9% APR but if you borrow £10,000 you only pay 10.9% APR. This factor is worth looking into when doing your research as an unsecured loan seeker because borrowing a few pounds more could save you hundreds or even thousands in interest payments over the years.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.