Unsecured Loans

An unsecured loan enables those who do not have a mortgage or any form of collateral to borrow an amount of money from a lender.

Unsecured loans can also be referred to as tenant loans as this describes the type of person that normally applies for them. For many people who do not own their own property, it is the only way of raising some cash for an unexpected bill, paying for a holiday, debt consolidation or buying new appliances to furnish their rented property. This can be contrasted with secured loans, which (as the name implies) are secured against property.

It is an ideal solution for tenants as it enables those without any assets to raise money and fast. They are generally easy enough to arrange and can take as little as a few days, unlike a secured loan that can take anything up to 8 weeks to complete.

Because there is no collateral involved in an unsecured loan, the lender sees this as holding much more risk than if they were holding an asset of yours which they could use to pay off the debt it you happened to default on repayments. This added risk usually means that the interest on a tenant loan will be much higher than on a secured loan for the same amount. The interest rate will vary for each applicant depending on their own personal circumstances.

How Much Can I Borrow With an Unsecured Loan?

All lenders of unsecured loans will vary with the amounts they are prepared to lend and the length of the repayment terms. You can expect to borrow between £500 and £50,000 over a period of 1 to 10 years. The interest will also be fixed which means you will be paying the same amount each month for the whole term.

Application Procedures for Unsecured Loans

The application process will involve the lender running a full credit check on you and your credit history. This will require you to provide consent as well as accurate information on your employment, salary, job security and other outgoings to ensure you earn enough to pay back whatever you borrow. They will also check up on your residency details such as how long you have been a tenant for.

The credit check will also look at any unpaid bills or outstanding debts you have, whether you have kept up with previous repayments or defaulted on any previous loans. If you have a good credit history you will more than likely be able to borrow the amount requested at a good rate. However a poor credit rating may increase the interest rate charged to you, or you may only be able to borrow a smaller sum. There are plenty of finance companies who specialise in helping those with a poor credit rating.

Once your loan application has been accepted in principle, you will need to complete and sign the written credit agreement before the loan is completed.

So if you rent a room, a flat or a house and need to raise some finance in a hurry then an unsecured loan could be just what you are looking for. For sensible borrowing make sure you aren't applying for more than you can afford and make sure you keep the repayment term short, the longer the term, the more interest you pay.