Guide to Unsecured Loans

Unsecured Loans
A secured loan is a loan taken out against somethng of value that you own - usually your home. An unsecured loan is therefore a loan which is lent simply because the lender has faith that you will repay the loan. Unsecured loans are usually more expensive in terms of interest rates due to the higher level of risk that the unsecured loan lender is carrying.
Many personal loans taken out with a bank or building society are unsecured, this means your home is not at risk if you fail with the repayments, however you will have tarnished your credit record.

Unsecured loans information

Not all of us are home owners and if you are one of the many people who do not own your own home or prefer not to have a loan secured on your property, then you will be looking for an un-secured loan. Unsecured loans can be used for any purpose. This could be to finance the deposit on a new flat, make a special purchase, buy a car, furnish a property, to take that special holiday, to consolidate together other debts or to fulfil a cash need over a period of time. With an un-secured loan a lender is judging your ability to repay the debt over the period of time the unsecured loan is for. In assessing your ability to repay the debt the lender will look at your credit rating. This is a formula the lender will use to assess a persons ability to repay debt. This formula will vary from lender to lender, but is likely to include the following items.

How long you have lived at your current address. Lenders favour those who have lived at their current address for longer than three years. Also whether you are a home owner, tenant or live with someone else such as your parents. Lenders prefer home owners and next tenants who may be able to provide a record of regular rent payments. Lenders may look at if you are married or not. They favour married people because there is the possibility of a second income and as these couples have legally joined together they can be asked to jointly sign the loan agreement. They will look at your employment situation. They prefer those in stable employment, and after that those who are self employed and can provide a history of income records.

If you get refused unsecured loan because of an adverse credit report, then you can request details of the information they have on your file. You can check your credit file by writing to the agency enclosing a cheque or postal order for £2. Give your full name and date of birth, address and any other addresses you've lived at within the last six years. You have the right to correct any mistakes and add a note to your file - a leaflet sent to you by the credit reference agency with your file tells you how to do this. Sometimes there can be discrepancies on your file and this process gives you the opportunity to correct or challenge the information. Whilst it is a good feeling to be offered an unsecured loan amount, think carefully about what you want the loan for and how much you want to borrow. What ever the unsecured loan is for there may always be hidden costs or unforeseen expenses, so allowing a little extra in the unsecured loan can be a sensible action. However taking out a loan that is much more than you want, just because the lender is willing to lend the money, can not only be expensive, but may place you in jeopardy in repaying the unsecured loan.