An unsecured loan is a loan that is based on trust and contract, and unlike a secured loan this type of loan is not secured against any asset. In order to be eligible for an unsecured loan you will usually need to have a good credit rating, as the non-secured nature of the loan makes it too high a risk for most lenders to consider bad credit customers. However, there are some lenders in the UK that offer unsecured loans to those with damaged credit, but at a high price in most cases.

Unsecured loans are available from a range of lenders, from high street banks and building societies to online lenders and credit unions. The good thing about these loans is that you are not risking your home or any other asset in the event that you fail to keep up with repayments, although this will clearly have a negative impact on your credit rating.

There is a downside to unsecured loans too. The repayment periods tend to be a lot shorter than with secured loans, usually between one and five years – although there are some lenders that offer seven or ten year terms. The shorter repayments periods mean that you will be paying more out each month. Also, the borrowing power is not as great as with secured loans, and most lenders will only consider a loan of up to £25,000. The actual amount you will be able to borrow will depend on your income, credit rating, and employment status amongst other things.

Although there is a downside to unsecured borrowing, as outlined above, the benefits are what often sway people to opt for an unsecured loan over any other type of finance. Many homeowners do have the option of going for a secured loan as well as an unsecured one, but in some cases the consumer does not wish to put his or her home at risk. When you opt for an unsecured loan you are basing the loan on trust and contract, which means that none of your assets will be at risk if you default, although your credit will obviously be affected if you do default on the loan.

Although the shorter repayment periods that come with unsecured loans can mean higher repayments it is also important to remember that it means that you will be out of debt more quickly, which is important for anyone that doesn’t want to be caught in a web of debt for years to come. You won’t have to worry about negative equity with an unsecured loan either. With house prices set to keep falling some people that take out a secured loan could find themselves in negative equity where they owe more on their home that the property is actually worth. However, an unsecured loan is nothing to do with your home, and therefore will not affect your equity levels.

Related articles:

• Requirements For An Unsecured Loan
• Is A Secured Loan The Right Choice?
• Options That Can Help Clear Your Debts

If you like this post why don't you subscribe to our feed?