What Is An Unsecured Loan?
An unsecured loan is a personal loan that doesn’t require any collateral. The loan isn’t secured against your personal property, so you can rest easy knowing that your house and your vehicle are always safe!
You’re assessed according to your credit rating and ability to repay the loan amount. You’ll need a decent credit score to qualify, but you won’t need access to valuable assets. It’s an ideal financing option for those who rent or don’t own high value items like cars.
How Does It Compare To A Secured Loan?
Unsecured finance generally offers lower loan amounts to help cover small costs in an affordable way. Perhaps you're planning your dream wedding, wanting to renovate your home or even buy a new car? If you've found yourself a little short of cash, this type of loan is a fantastic solution.
Secured loans offer much larger amounts of money, but they are best suited to those wanting to make big purchases, such as property or land.
Interest rates are usually lower for secured loans, but there's a very risky catch - you could lose your home. The loan is secured against your personal assets (your property, car or even your business). If you default or fail to repay, the lender is within their rights to sell your assets to recover the debt. Hence there's a very real danger that you could end up losing your family home!
How Do Unsecured Personal Loans Work?
The process is simple and straightforward. Decide how much you want to borrow and submit an online application.
The lender will review your credit report to help come to a decision. Providing that you have a good credit history you’ll receive a decision in minutes.
Next, agree on a repayment plan upfront with the lender. Typically, you can choose to spread the cost over 1 – 24 months, in easily manageable, fixed monthly instalments.
Once you’re happy with everything and you’ve accepted the offer, the lender will transfer the funds direct to your account. There you have it - money in minutes with no risk to your home!
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How Do You Get An Unsecured Loan?
1. Apply Online
This is the quickest and easiest way to apply. Simply complete and submit a quick 1-2 page online form. You can apply from the comfort of your own home, or on the go, at your own convenience.
Like most loans, you will need to provide information to confirm your identity and your financial situation:
- Your age - you’ll need to be 18 or above to qualify
- Your home addresses dating back to the past three years
- Your employment details - you may need to give the name and address of the company you work for
- Financial information, such as your income and a brief account of your monthly expenses
Why Choose Us: Our online applications are safe and secure. Here at Flexy Finance we use 265 bit data encryption so that your details remain 100% confidential and we'll never pass on your details to third parties without your permission.
2. Get A Decision
The majority of lenders will give you an instant decision through their site, which they’ll then follow up with an email containing all the information and terms of their offer. Other times, lenders might contact you on the telephone to deliver a decision.
Depending on the lender you choose, some lenders may require you to provide additional information before they can approve you. On occasions where an instant decision cannot be made, your loan will most likely be agreed in principle, with a final decision being made once all the relative documentation has been forwarded in.
Top Tip: If you’re looking for a quick transfer, it’s worthwhile checking the pay-out times of a few different loan providers before applying. This way you can be sure that the service you receive is best suited to your needs.
3. Receive The Money
You’ll need to sign a credit agreement before the loan is transferred. It’s a fairly straightforward process and it shouldn’t delay payment.
It’s there to protect both the applicant and the lender, so it’s in your interest that you fully understand the terms of the agreement. If you’re unsure of anything this is the time to ask.
Once you’ve signed, the cash will be deposited directly into your account, ready to spend however you see fit! Most lenders will transfer funds to an applicant's account within just 24 hours.
Is an Unsecured Loan Right for You?
Before you apply for any loan, it’s always a good idea to do some research. You need to ask yourself a few standard questions to see if it’s the best choice for you.
1) What Do You Need The Loan For?
First, determine what you’re getting the loan for. Ask yourself - is it for something useful, or is it for something frivolous? It won’t necessarily matter to the lenders, but it will matter to you and your future financial situation.
Good Reasons To Get An Unsecured Loan:
- Consolidate your debts
- Make home improvements
- Finance a wedding, funeral or dream holiday
- Improve your credit rating
- Pay off credit cards
- Purchase a vehicle
- Cover the costs of moving house
Caution: Always check that the lender you’re considering is reputable before applying. Trustworthy companies are authorised by the Financial Conduct Authority. To check this, visit the FCA's website here and simply search their register for your preferred lender.
2) How Much Do You Need To Borrow?
Unsecured loans are small loans of between £300 and £5,000. They’re ideal for covering smaller costs, but they won’t be very helpful if you want to make big purchases (i.e. property or land).
So, do your calculations and consider if the amount available is enough to cover what you need.
3) Can You Afford Unsecured Finance?
Repayments are taken as fixed monthly instalments, so paying back is usually straightforward and manageable.
However, bear in mind that this type of loan does come with a higher interest rate than a secured loan, simply because there is no collateral. Before you take steps towards accepting the money, you need to make sure that you can actually afford to cover the monthly repayments.
Expert Advice: As well as checking the cost of repayments, you should also factor in any additional fees or charges that come with the loan. This way you won’t encounter any unexpected costs further down the line.
4) Will You Qualify?
In theory, anyone can apply. The amount you can get is based on your income and your credit score, so unlike traditional finance, even people who don't hold significant assets can be accepted for an unsecured loan.
If you have limited assets, but a good credit score, this type of finance is a fantastic option. If you don't have a good credit rating, don't worry! There are options for those with poor credit, so you can still be approved.
Top Tip: Always use soft search reports to check your eligibility chances before applying directly with a lender. You can find out more about this from Equifax.
5) Unsecured Loans For Bad Credit?
As the loan isn’t secured against your home, those with a particularly poor credit history may find it harder to qualify, but the rules do vary from lender-to-lender.
There are loans that are marketed as no credit check unsecured personal loans. So, while it’s assumed that those with poor credit might struggle to qualify, many find that a loan can be issued, albeit with a higher interest rate.
If you’re going to get a bad credit loan you need to be mindful of three things:
Some come with a high APR. This could potentially cause financial difficulty if you’re not earning enough to keep up with the repayments. Of course, you can easily avoid this by checking beforehand that your income level is high enough to pay back comfortably.
Bear in mind that if you have poor credit the loan you are granted will likely be lower than the amount you applied for, so manage your expectations.
Beware predatory companies who may look to take advantage of your current predicament. Always double check that the lender is registered with the FCA and comb through the terms of the contract thoroughly.
How To Get The Best Unsecured Loan Deal
When applying for this type of loan, there are a few that things you can do to ensure that you get the cheapest and best deal for you. Here are our 5 top tips:
1. Get A Guarantor To Sign With You
The easiest way to get an unsecured cash loan is to get someone to sign with you. A co-signer or guarantor acts as a means of security for the lender, in case you default on your loan. With this added security you are far more likely to obtain a low APR and get approved.
If you can’t find anyone willing to sign, it’s not a problem. You can still apply without a guarantor, but having one will guarantee you a better deal.
Caution: If you find yourself unable to repay the loan, your guarantor will have to take responsibility for you. This is a somewhat risky position to put someone in, so the person you choose will need to trust you completely.
2. Double Check For Hidden Fees
Avoiding hidden fees is crucial to securing the best loan deal. You need to carefully comb through the contracts and the terms presented in them, to ensure that you don’t encounter any costly surprises in the future. If they are present then you might want to consider trying to find an alternative lender that doesn’t impose unnecessary fees.
Hidden fees to look out for include:
- Continuous interest on the unpaid balance
- Charges for early repayment of the full loan amount
- Application fees
Expert Advice: You can find detailed instructions for spotting excessive costs and hidden fees from the Money Advice Service.
3. Opt For A Peer-to-Peer Lender
Unsecured personal loans aren’t only available from lending companies; individuals can grant them as well. They’re called peer-to-peer loans and usually the interest rates are a lot lower than if you were to opt for a loan from a company.
They operate on the same platform as all potential lenders, so you can still apply for them through a comparison broker. However, do bear in mind that:
- You’ll need an excellent credit rating to be considered
- Approval rates are low – most aspiring borrowers are turned down
4. Raise Your Credit Score
Having a poor credit rating can really affect your chances of being accepted for a loan. If you do have bad credit then you need to be proactive and start pulling up you credit score. Not only will it improve your chances of getting approved, but it will also help you to secure a lower interest rate.
What Can You Do To Improve Your Credit Score?
- Sign up to the electoral register
- Double check your credit report for any errors and get them corrected. You can find useful information on how to do this here.
- Pay off any outstanding debts or credit cards that you may have
- Close any store cards or credit cards which you are not currently using
- Don’t open new credit cards if you’re considering applying for a loan
Top Tip: Keeping regular checks on your credit report will prevent you from falling into poor credit. You can check your credit score for free here.
5. Work Out A Repayment Plan Beforehand
A loan is usually paid back in line with the terms imposed by the lender, but there is nothing to stop you devising your own repayment plan to begin with. A good tip is to make some calculations and projections of your own.
Proposing a plan of how you’d like to repay in your application will show that you’re responsible and prepared. Most lending companies will be impressed by this and it could improve your chances of being granted the loan.
If you don’t have the assets to back up a secured loan, you don’t necessarily have to pay more. As discussed, there is always a way to make an unsecured loan cheaper and receive the best deal.
- Shop around before you decide on a provider
- Read all of the terms and conditions carefully to avoid surprise charges
- Stay safe and check that the loan company is registered with the FCA.
The Pros And Cons Of Unsecured Loans
All loans have their fair share of benefits and drawbacks. To decide if this particular loan is a good option for you, you need to consider both sides together.
What Are The Benefits?
There Is No Risk Of Losing Your Personal Property
One of the biggest advantages of an unsecured loan is that there is no need to provide collateral. The loan is never secured against your personal assets, so if you default on repayments there is no danger whatsoever of losing your home, car or business.
It’s Easy To Get Approved
No collateral? No problem. As you don’t need valuable assets to qualify, a wider demographic of applicants are able to get approved for this type of loan. For example, those who rent or don’t own a vehicle will likely struggle to qualify for traditional finance from the bank. However, with unsecured finance they will be accepted (providing that they have a good credit score of course).
Applying Is Quick And Hassle-Free
Applications can be made entirely online, so there is no need to visit the bank or make any calls! All you have to do is complete a short online form, stating how much you’d like to borrow. You’ll also need to provide some basic personal information such as your address, age, employment and income, but this takes no time at all. Once you’ve submitted your application the lender will process your details and return to you with a decision in minutes!
Access Cash The Same Day
As you don’t need to provide collateral or excessive documentation, applications are much quicker to approve than bank loans, which can often take months just to process. Most applicants will receive instant approval and the majority of lenders are able to transfer the funds to you within just 24 hours. If you need cash fast this is a great option.
Why Choose Us: We research hundreds of lenders to get you both the best rates and the quickest pay-outs. With us, you can receive your money within just 15 minutes of applying, and all with no fees!
It’s A Great Way To Consolidate Your Debts
You can take out an unsecured loan to merge all of your debt together and consolidate it under just one loan. It may seem counterproductive, but in fact, it can be a very clever way to pay off what you owe.
You’ll have just one clear cost to repay each month and one interest rate to focus on. This can significantly cut back on the time, effort and stress of repaying several types of debt. Better still, if you play your cards right, you may even get your debt reduced.
What Are The Drawbacks?
They Can Be Expensive
Because unsecured loans aren’t secured with valuable assets, it is a lot harder for lenders to recover the loan amount should you fail to repay (they can’t sell your property to earn their money back). To get around this, many lenders will charge you a much higher annual percentage rate, so repaying can become expensive.
However, providing that you shop around for the best deal you should be able to secure the lowest rate possible. There are also lots of simple things you can do which can reduce the APR on your loan. For example, you can get a guarantor to sign with you. For more information on this we’d advise reading about how to get the best unsecured loan deal.
You Can Only Borrow Small Amounts
With unsecured finance it’s very difficult for the lender to recover the money should you fail to repay. Because of this, loan providers often limit the amount they’re willing to lend you to reduce the risk of non-payment. As long as you’re not wanting to purchase high value assets with the loan, such as real estate, this shouldn’t affect you. The majority of applicants are successfully granted the amount they apply for.
If you do need a larger amount then you’re perhaps better off considering a secured loan. You can receive a lot more money, but the risk is far greater – you’ll have to offer your home or car as collateral.
Caution: Be wary of loan providers that push you to borrow more than you need. This is a key sign of a predatory lender, and it’s never wise to bite of more than you can chew financially.
Unsecured loans are the go-to for when you need money fast. Especially if you don't have the best financial standing or you need a larger amount of money. The interest rates can be more expensive, but there is absolutely no risk to your personal property!
Weigh Up Your Options: Unsecured Loans, Secured Loans Or Credit Cards?
Most people will need to borrow money at some point in their lives, but each will have a different agenda for doing so - some may be planning the purchase of a lifetime, while others may just be looking for a way to pay off their debts at a better rate. So, before applying for a loan always weigh up your options to find a service that suits your situation best.
What Can A Secured Loan Offer You?
Larger amounts of money One of the main benefits of a secured loan is that it allows you to borrow large amounts of money. If you want to make a big purchase, like a new car or a house, you can get the amount you need all at once, in a single loan.
High risk and difficulty getting approved The main drawback of a secured loan is that you need to put your assets up as collateral. That comes with several ramifications. First, you need to have the assets to offer as collateral in the first place. If you don’t own valuable property, you won’t qualify.
Secondly, the asset you offer is blocked for the remainder of the repayment term. You will not be able to easily sell or transfer ownership of the asset, should you want to. Worse still, you risk losing the asset completely. Should you default on repayment of the loan, the lender can sell the asset to recoup for the outstanding debt.
Longer repayment terms The repayment terms for a secured loan extend across decades and they tend to be paid in small installments. This means that you can take your time paying back the loan and financial strain is kept to a minimum.
Repayments that will likely outlive the purchase Most people who get secured loans, do so to finance major purchases. As repayment periods are so long, by the time you repay the loan in full, it might not be worth it.
For example, if you’re buying a car it could stop working long before you finish repaying the loan. The difference if felt even more on major household appliances which often have an even shorter lifespan.
What Can A Credit Card Offer You?
- Interest-free cash
Credit cards allow you to borrow cash with no interest attached, providing that you pay your balance on time. Yes, there's the catch – if you don't, the debt you acquire also acquires interest. But, if you're confident that you can always repay on time, a credit card could be useful.
- Risk of permanent debt
Credit cards can be seductive and dangerous. Instead of receiving a one-off lump sum, you’ll have access to a permanent line of revolving credit. The problem here is that many people get too used to the ease and convenience of spending money they don't have. Emergencies turn into needs, needs turn into wants, and before you know it you're spending more than you can afford.
If you fail to repay the whole balance at the end of the month, high interest is added to the amount outstanding. Once you get stuck in this vicious circle, it's extremely difficult to get out of it and be back on your feet.
- Trustworthy providers
A credit card is normally issued by a bank, so you can be certain that all transactions are made legally. In addition, should you run into financial trouble, it is much more likely that you’ll be able to strike a deal with a bank to repay the debt than you would with a third-party lending company.
- Limited amounts of money
The limit you receive depends entirely on your credit score. The better the score, the higher the limit. Even so, it won’t be a significantly large amount. If you’re looking to finance a large cost, such as the purchase of a new vehicle, a credit card won't help you.
Moreover, if you have a poor credit score it’s highly unlikely that you’ll even qualify for a credit card. An unsecured loan is far easier to qualify for in comparison.
What Can An Unsecured Loan Offer You?
- No Collateral
The most attractive thing about this type of loan is that you don’t need to put up your assets as collateral. If you don’t own valuable assets or you simply don't want to risk having them taken away, this is an excellent option.
- High Approval Rates
You can easily qualify for this type of loan, even if you present no collateral, have bad credit, or you’re unemployed. Unlike a credit card, you don't need to have an impeccable financial history to apply or get accepted.
The sum you have access to will depend on how good your credit history is, but even if it's not stellar, you can still benefit from unsecured loans for bad credit. It’s an excellent solution for people who fail to qualify for traditional financing options.
- High Interest
The problem with an unsecured loan is that the interest tends to be high. As there is no collateral, there is little security for the lending company. To protect themselves, lenders often impose high interest rates.
Do remember though, losing your home is definitely far costlier than paying a high interest rate. When you look at it this way, it’s actually a fair deal.
- Small Loan Amounts
The amount you can borrow is limited. Lenders can't afford the risk of giving out large sums of money to people who don’t have valuable assets.
The amount you receive will depend on how high your credit score is, but even the maximum amount (£5,000) is a lot less than you could get with a secure loan. Although, this shouldn’t matter if you need the money for covering smaller expenses (e.g. to put towards a wedding, or to cover home improvement costs).
How Much Can I Borrow?
You can borrow anywhere between £300 to £5,000.
How Do Repayments Work?
You can repay over a period of 1 – 24 months in simple, fixed monthly instalments. The amount you repay each month will be pre-agreed with the loan provider before any money is transferred.
You can use the Money Saving Expert's free loan calculator to get a representative example of the amount you will need to repay.
What Happens If I Default On Repayments?
As there is no collateral with this loan, if you default on repayments, there is no risk of losing your personal property. Instead, the lender will likely charge you a late fee, or increase the interest rate. If you continuously fail to repay, the debt may be transferred to a collection agency, so it’s best to avoid defaulting on repayments where possible.
Can I Still Get An Unsecured Loan If I Have A Bad Credit History?
Yes. There are Unsecured Loans for bad credit, so you can still qualify. Just bear in mind that you may have to pay a higher interest rate than someone with a good credit score.
Do I Need A Guarantor?
No. It is not essential to have a guarantor to qualify for an unsecured loan. However, having one could lower the APR you are charged on the loan, so if you haven’t got one already you may want to consider finding someone to be a guarantor.
What Do I Need To Qualify?
Generally, you’ll need to be 18 or over, live in the UK and have a relatively good credit score. If you don’t have a good credit score, don’t panic. You can still be approved, it just might be a little more difficult.
How Will I Receive The Loan?
Loan amounts are transferred direct to your personal account – often the same day that you apply!
What Does APR Mean?
An Annual Percentage Rate, refers to the total interest you will need to pay, per year, on the entire loan amount. Ultimately, it determines how high or low your monthly repayments are. The lower the APR, the lower your monthly repayments will be.