Unsecured loans allow you to borrow up to £25,000 even if you don’t own your home. Not only can unsecured loans cater for all credit ratings but also no security is required.
What is an unsecured loan?
An unsecured loan is great because the borrower does not risk any of their assets – there’s no security or collateral required (e.g. house, car, jewellery) and you can borrow up to £25,000. This is why it is the UK’s most popular form of credit.
Instead, the deals available depend on the borrower’s:
- credit history – so what’s in a credit file is important
- income vs outgoings – to judge the affordability of repayments
Our free enquiry service works with the relevant lenders in our panel. We aggregate their feedback and instantly tell you which of them are, in principle, interested in lending to you.
Some lenders will provide a tailored quotation by conducting a soft search of your credit file (i.e. the search is not recorded). Others will use go/no go criteria to decide if they want to make you an in-principle offer (we’ll show you their representative deal).
Compare unsecured loans
Ten per cent of UK adults already have an unsecured loan. They’re great for spreading the cost of larger purchases such as cars, home improvements, holidays and weddings. You could also consider one if you want to consolidate other unsecured debts (e.g. credit & store cards, overdrafts, etc) to help reduce total repayments & interest charges and simplify management. A competitive market means there are numerous lenders. We’ll help you find what you need without damaging your credit rating. And if you are a student thinking of paying off your student loan with an unsecured loan then read this.
3: Choose the Lender
Compare the quotes given to you and decide which one(s) seem to most closely meet your needs. Then click through to complete your application online.
4: Receive Your Money
All lenders are capable of paying out your loan the same day they approve your application. It will be sent to your bank account.
Top tips when using an unsecured loan
Although the principle of an unsecured loan is very straightforward we thought it would be worthwhile to list some things to keep in mind as you consider your application:
- Borrow only what you need
- Be aware of interest rate bands – borrowing slightly more may reduce total costs
- Make sure you can afford the repayments
- Repay your loan on time and in full
- If you can repay your loan early then do; you’ll save lots of interest
- Keep tabs on your credit file & know your credit score (find out more)
Interest rates are at a long term low
If you have a perfect credit history then unsecured loans have never been as cheap as they are now. Rates also depend on how much you borrow. The lowest rates tend to be available when you borrow at least £5,000. At the moment you can borrow £5,000+ starting as low as 3% APR.
Even for people with a less-than-perfect credit history, there are lots of lenders who could help. By getting them to compete for your business you can still get a great deal.
Lenders who set interest rates to reflect a specific credit score will appeal to people with modest credit issues. A bad credit unsecured loan (e.g. missed payments, defaults, arrears, etc) will have a higher interest rate and sometimes lenders who offer a “one rate for all” may be the most competitive. It may also be worth looking at a guarantor loan which is an unsecured loan for when it’s become hard to borrow from a standard lender.
Types of unsecured loans
Unsecured loans (often called personal loans) are a very competitive form of credit. They are based on a simple principle that both consumers and lenders find easy to work with. Lenders have developed the product to meet the needs of numerous different sections of the UK population. So, if you rent your home, if you want a small loan, a loan particularly quickly, have credit problems or are self-employed, part-time employed or retired then there’s almost certainly an unsecured loan that can meet your needs.
Alternatives to unsecured loans
Unsecured loans have significant advantages of speed and flexibility. But these can be outweighed by some important disadvantages. There may be times when you need more than an unsecured loan can provide. Maybe:
- You want to borrow more than an unsecured loan allows
- You want an even lower interest rate than an unsecured loan will permit
- Your credit history is making it hard for lenders to accept your applications
If these things are issues for you then you could consider these alternative loans:
Estimate Unesured Loan Repayments
How much would you like to borrow?
How long for? (months)
This tool is for guidance ONLY. It is designed to help you estimate loan repayments. It uses the representative APR of the product. Lenders have a duty to conduct affordability checks when you apply for a loan.
Representative example: Borrow £9,000 over 48 months. Repay £246.84 per month. Total charge for credit will be £2,848.42. Total amount repayable is £11,848.42. Representative APR 14.2% (vrbl)
Personal Loans Guide
If you’re uncertain which type of credit might suit you or you have a money problem then one of the guides may help you. We summarise each type of loan and its pros and cons and address issues regarding debt and credit ratings.
Unsecured Loans FAQs
Answers to Your Unsecured Loan Questions
An unsecured loan is a loan where you borrow on the basis of your probable ability to afford to make the repayments (i.e. affordability) and your known historic credit repayment behaviour (i.e. creditworthiness). The loan is described as ‘unsecured’ because you do not offer the lender an asset as security – i.e. the risk you won’t repay the loan is not offset by the risk of losing something that is valuable to you (e.g. home, car, jewellery). Instead, the lender selects a rate of interest rate that compensates them for the risk. If a lender judges the loan to be too risky they will probably decline to make the loan at all.
- Creditworthiness – the lender will credit score your application using the information in your credit file held by one of the UK’s credit reference agencies.
- Affordability – the lender looks at your income and outgoings to make sure your loan repayments won’t create financial difficulties. To do this lenders may take advantage of “open banking“.
The difference between these types of loan is about how the lender offset the risk of not having the loan fully repaid. In the case of a secured loan, the lender has control over a valuable asset provided by the borrower e.g. a home in the case of a secured loan, or a car in the case of a logbook loan. Should the borrower fail to make repayments the lender could choose to sell the asset to cover the outstanding loan amount. In the case of an unsecured loan, there is no asset provided so the lender judges the risk and sets an appropriate interest rate. Hence, the rate of interest charged for an unsecured loan will be higher than for a secured loan, all everything else being equal.
The great thing about an unsecured loan is that you don’t put any assets at risk when taking out the loan. However, you will pay a higher interest rate than you would with a secured loan. As with any form of credit, your credit rating is at risk if you fail to make repayments on time or in full. Your repayment “behaviour” will be recorded in your credit file. Always make sure you fully meet your repayment obligations otherwise both the future availability and price of any credit you might want could be adversely affected.
When you apply for an unsecured loan the potential lenders will need to assess:
- how creditworthy you are – by reference to your credit file
- how affordable the repayments will be – by reference to your income and outgoings (this may make use of “open banking“)
The amount you wish to borrow and your creditworthiness will be major determinants of the rate of interest that is charged. You don’t need to provide any security, so nothing you own is put at risk. Your repayment behaviour of the loan will be recorded in your credit file.
If you want the best chance of finding the right unsecured loan for your needs then you should follow this four-step process. Our panel of lenders is wide enough to cover most personal circumstances. We’ll tell you which lenders say they will lend in principle and show you either a tailored quote (which some can provide) or their representative example (which will give you a guide to their typical deals).
These are the factors that you might want to consider when selecting your best unsecured loan:
- The APR% and the total cost of interest over the life of the loan
- Whether you can repay the loan early (to reduce interest charges) without paying any early redemption penalties
- Whether there are any other fees associated with managing the loan (be aware of late repayment fees, etc)
- The reputation of the lenders (you can find ratings and customer feedback at Trustpilot, Review.io, Feefo, etc)
Yes, you will need to disclose both your income and your outgoings to any lender you wish to use. All lenders are required to assess an applicant’s ability to afford repayments on any new credit. Lenders need to be able to demonstrate to the FOS or FCA that they did cause financial hardship or lend recklessly. A growing number of lenders are using so-called “open banking” to make their affordability assessments.
There are unsecured loans specifically designed to accommodate applicants who have credit history problems. These will attract higher interest rates to compensate for the higher lending risk. You may also wish to explore the option of an unsecured guarantor loan. You may find the interest rate is lower than on other bad credit unsecured loans because you provide a guarantor.
An applicant for credit will always be credit checked if for no other reason than to prove their identity to avoid fraud. However, if you’re asking the question more from an angle of creditworthiness then there are some loans that are less dependent on a person’s credit rating.
If you have a problem in your credit history you certainly don’t need to use a guarantor loan to get unsecured credit. There are plenty of other unsecured lenders who offer loans without a guarantor but you may need to be prepared to pay a higher interest rate than with a guarantor loan.
One of the aspects of improving your credit rating is about adding “good news” to your file. So paying off credit on time each month, for instance, is the sort of news you need. It doesn’t matter if this is for a secured loan or unsecured loan, for a large loan or small. The credit reference agencies will capture this information for future credit providers to see. Over time your rating will improve.
All your repayment behaviour, good and bad, is reported to the main credit reference agencies and forms an important part of your credit file. Future credit providers will see this and use it to decide if they want to lend and if so then on what terms. If you miss repayments this will be detrimental to your credit rating as well as potentially triggering additional fees. You will also be in arrears. If you do not catch up with your repayments the lender may decide you have defaulted (as per terms of the contract). If this happens they may pass the debt to a collection agency. Poor repayment behaviour, defaults etc will be on your credit file for six years and affect all future credit applications.
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