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Are unsecured loans worth it?

Unsecured loans are loans that aren't based on or backed up by collateral. Essentially, they are given based on your perceived ability to repay based on credit history. It can be more difficult to get approved for this sort of loan, and while it comes with advantages – like the fact that it doesn't require collateral – it also presents disadvantages, such as the fact that you need a high credit rating and you pay high interest. It all comes down to personal circumstances, so we're going to take a closer look and determine whether an unsecured personal loan is worth it.

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Who can get unsecured loans?

As with any loan, in theory, anyone can get an unsecured loan, you see that on our 10 best types of unsecured loans. Depending on your specific circumstances, other options might be preferable, but if you want an unsecured personal loan, you should normally be able to get it. As with other untraditional loans, there are certain categories of people that might consider unsecured loans:

  • Students

Student loans are some of the most common types of unsecured loans. The money is granted for a period of several years, with no collateral, as these loans are typically taken out by very young individuals who have not yet had the chance to accumulate assets.

  • People who don't own valuable assets

People who don't own valuable assets often opt for an unsecured loan, despite its drawbacks, because it doesn't require collateral and they can be approved, as long as their credit is good. Of course, their income level needs to be high enough for them to be able to afford the higher interest rate.

Are unsecured loans the right choice for you?

If you fall into one of the categories described above, you might consider opting for an unsecured loan. You can get unsecured loans up to 10000 pounds, you just need to check and see who offers them and what your best option is. Generally speaking, before you apply for an unsecured loan, it's good to do some research on unsecured loans and ask yourself a few questions to see if it's the right choice for you. We have put together a guide on secured loans or unsecured loans to help you decide the best choice for you.

Who offers unsecured loans?

  • Sainsbury's Bank
  • Tesco Bank
  • M&S Bank
  • Santander
  • HSBC
  • NatWest
  • Zopa
  • TSB

  • What do you need the loan for?

First, you need to determine what you're taking this loan for. Is it something essential, or something frivolous? It won't necessarily matter to the lenders, but it matters to you and your situation. You also need to know this in order to figure out how much you need.

  • How much do you need to borrow?

That brings us to our next question: how much do you need to borrow? Anyone will tell you that it's not a good idea to bite off more than you can chew financially, so to speak, so don't borrow more money than you actually need.

Keep in mind that the amount you will be granted is also limited to your financial circumstances. With excellent credit history, you can get as much as £50,000, but poor credit history will bring down that amount.

  • Can you afford to get this loan?

Then, you need to ask yourself if you can afford a loan, and this one, specifically. As mentioned earlier, this type of loan comes with a higher interest rate that you might not be able to afford to pay, so before you take steps towards taking this money, make sure you can cover the monthly payment.

What good alternative lenders are out there for unsecured loans?

While unsecured personal loans are offered by many traditional financial institutions like banks, there are also alternative lenders to be considered. Merchant cash advances and payday lenders can be great sources for unsecured loans for you. However, you do have to be aware of the fact that repayment will still have been guaranteed in some way by these lenders.

So while they technically fall under the category of unsecured loans, they do actually have some degree of security for the lender. You might be asked to sign an agreement for an automatic account withdrawal or write a post-dated check.

What happens if you default on unsecured loans?

As this type of loan comes without collateral, you might be asking yourself what happens should you default on your payments. Since there are no assets to repossess, the borrower will be ordered to repay by having their income garnished, the lender may use a collection agency to get the money, or the borrower's home might even have a lien put on it.

The lender is within their legal rights to recoup their money, so an unsecured loan does not come without strings or responsibilities, even if there is no specific asset tied into the loan. This must be taken into consideration before you sign anything pertaining to the loan.

All in all, an unsecured loan can be a very good option for a personal loan, whether you're a student who needs to pay for schooling, you have debt that needs to be paid, or you have a personal purchase you intend to make soon. There are both benefits and drawbacks that need to considered and weighed carefully before you commit to getting a loan that you will have to repay for a long time.

Unsecured Loans FAQ
What is an unsecured loan? An unsecured loan is a loan that is not supported by collateral, but rather by credit history and the perceived repayment ability of the borrower.
Who can get an unsecured loan? Anyone who qualifies can get an unsecured loan, assuming you have good credit history, but no assets. Generally, they are chosen by students and people who cannot guarantee collateral.
Is an unsecured loan a good option for you? Only you can decide whether secured or unsecured loans are better for you. If you have collateral, a traditional secured loan might be better, but if you can afford the higher interest and do not have collateral, an unsecured personal loan can be the answer to your financial needs.
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