Borrowers usually have two choices when they want a personal loan: unsecured personal loans or secured personal loans. Unsecured loans are loans for which the borrower doesn't have to put down any official collateral. They are available to both homeowners and renters, but some lenders prefer to only work with homeowners. Most unsecured loans have a limit of GBP25,000 on how much you can borrow. You are also not likely to be able to get a personal loan that is not secured for less than GBP1000.
Secured loans, on the other hand, let people borrow more than GBP25,000. Most people can only get them if they own their own home, because they need some kind of security to get the loan. Most of the time, the borrower's home or equity in the borrower's home is used as collateral.
There are a lot of places where you can get both secured and unsecured loans, such as high street banks, online lenders, and building societies. With so many options, it can be hard to decide where to get a loan. Here are some things to think about that might help you decide: -
APR: Annual percentage rate. This is the interest rate you will pay on unsecured loans after any introductory rates end. The APR is a good way to figure out how much your unsecured loan will cost. The lower the APR, the less you will pay for your loan. You should also be wary of APRs that change over time. Some loan companies won't give out their headline APR rate until the borrower agrees to a loan of 'x' amount that doesn't have to be paid back. The APR for smaller loans is often much higher, and can be more than three times the headline rate.
Fixed or variable rates - Most unsecured loans are available on a variable APR. This means that the interest rate could go up or down depending on what the Bank of England does with the base rate. But some loan companies offer personal loans that don't need a credit check and have fixed interest rates. The fixed rates start out higher than the variable rates, but they protect you from future increases in the standard APR rate over the life of the unsecured loan.
Credit arrangement fees: Some lenders of unsecured personal loans will charge you a credit arrangement fee and an administration fee to set up your loan. Some lenders may not charge you one or both of these fees.
Online application form: Does the lender have an online application form that is easy to fill out? Most of the time, the fastest way to apply for an unsecured loan is through an online form.
Time to process: How long will it take for the lender to decide on your application? Some lenders make decisions on personal loans that aren't secured right away.
Loan payment protection: Most lenders will cover your payments on an unsecured personal loan if you lose your job or get sick and can't work. Different lenders charge different amounts for loan payment protection, so if you're thinking about getting it, make sure it won't cost you an arm and a leg.
