The main pros of unsecured loans as opposed to other types include:
- Lower risk for the lender. Your home is not at risk in the event of failure to pay
- You don’t have to be a homeowner to be able to obtain an unsecured loan, so they’re suitable even for people who rent etc
- Unsecured loans are often more expensive than secured loans. This is because, without any security for the lender, you represent a higher risk. So the interest rate charged is often much higher than an equivalent value loan that’s secured against your property
- Because there’s no security backing the loan for the lender, those with poor credit history struggle to get accepted for such a loan and, where they are accepted, they’ll often find the offer comes with a much higher interest rate.
- Unsecured loans are generally only available up to £25,000. If you require a loan for a larger amount than this, an unsecured loan might not be for you!
Before you apply for an unsecured loan, you should be completely sure that you can realistically afford the monthly repayments. Although your home is not at risk in the event of failure to repay, the lender could pursue legal action against you to recover the loan.
Don’t apply unless you’re 100% certain. Applications for any form of credit, whether successful or otherwise, can show up on your credit rating and could potentially affect the outcome of any future applications you make for credit.
Watch out for early repayment penalties!
Some lenders will actually charge you for repaying an unsecured loan early! Make sure you familiar yourself with the terms of your loan and be clear as to whether this could apply to you.