Unsecured loans are the most common type of loan available to consumers. They encompass everything from borrowing a small amount of money to taking out a credit card or buying an expensive item on finance.
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What is an “unsecured loan”?
In a nutshell, the term “unsecured” means that you do not have to put any of your assets e.g. your house or car up for collateral to be approved. Your eligibility is assessed based on your credit report – how likely you are to pay the loan back based on your credit history.
This means that the larger assets you own won’t be in any danger if you default on your repayments. However, defaulting does have a serious negative effect on your creditworthiness, deeming you untrustworthy to lenders which could result in future rejections and higher rates on any loans you wish to apply for in the future.
Pros and cons of unsecured loans
A plus point of unsecured loans is that in most cases you get your money fairly quickly – usually, on the same day you are approved. The process is swift and easy, so you can get on with the venture your loan will facilitate quickly. As a result of the ease of this process, some believe this is a way to get more cash with little repercussions – definitely not the case! Not keeping up with repayments can result in the lender taking legal action against you by filing a CCJ (county court judgement) in an attempt to reclaim the money, which would have a catastrophic effect on the health of your credit file. It is always best to check your financial situation and assess if you can afford the repayments on your loan before applying to avoid falling into debt.
Unsecured loans can be a great way to achieve some of your life goals: to pay for a wedding, holiday, make home improvements or even just to give your credit a boost. Like all forms of borrowing, it is wise to carefully consider if this is the right route for you – it is never a good idea to take out a loan you can’t afford!
If you want to see how much you can borrow and the likely rates you’ll receive, why not sign up with us? We can show you which loans you are eligible for so you can feel more comfortable applying!
Last updated by Oliver Macmillan, May 2022