An unsecured loan is one of the most common loan products in the UK, and makes up over half of all loans offered. Simply put, an unsecured loan is one that is not secured against the borrower’s house.
Unsecured loans are extremely popular, because unlike secured loans they can be used for near enough any purpose, and you don’t need to be a homeowner to apply for one.
Secured loans often require authorisation from the mortgage provider, and some companies will put restrictions on what they can be used for.
Unsecured loans are most often used for buying cars, home improvements, paying off debts or paying for a dream holiday, though can be used for near enough anything. Lenders will ask you what you intend to use the loan for, and will ask that you use it for a legal and legitimate purpose.
Whilst you can often use these loans for whatever you please, be aware that loan companies reserve the right to refuse you a loan based on what you intend to use the loan for.
Unsecured loans tend to cost more than a secured loan, for the simple reason that the loan company has little to fall back in if you default on your loan, but can still be priced extremely competitively.
Loans are often priced based on a consumer’s credit score, so whilst a loan may be advertised with a typical APR (Annual Percentage Rate), be aware that the rate offered to you may vary greatly.
The average term of a loan is 4 years, and the average loan is around £4,000, with loans generally offered to those with a medium to excellent credit score.
For loans of more than £7,500, most people will look to a secured loan, which is often offered over a greater period as well.