Loans Guides

Unsecured loans

What are the advantages and disadvantages of an unsecured loan? What should I be looking out for?

An unsecured loan is a personal loan that isn't secured against any of you assets. Unsecured loans are considered by lenders to be fairly high risk, so to be approved for one you will need to show evidence of a sound credit history and sufficient earnings to repay the loan. But how do you decide whether an unsecured loan is right you? The following tips should help.

Alliance Leicester Unsecured Loan

	Borrow between £7,500 and £15,000 with Alliance & Leicester, 8.0% APR typical.

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What are the advantages of unsecured loans?

Not everyone has a foothold on the property ladder so not everyone is able to apply for a homeowner loan. Unsecured loans allow those who don’t own properties the chance to take out a loan.

However, homeowners may themselves choose to take out an unsecured loan. Unsecured loans remove the endless security measures associated with arranging secured loans, and taking out an unsecured loan can be a relatively simple process, with funds made available within 24 hours in some cases.

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What are the potential drawbacks of unsecured loans?

The lenders’ terms of the loan will reflect the high risk nature of unsecured loans, and characteristically will allow lesser amounts to be borrowed at a higher rate of interest than most secured loans. Interest rates on unsecured loans can be exorbitant in the extreme, so it's essential to shop around.

The size of an unsecured loan will generally be smaller than that of a secured loan. As a result, the repayment duration of the loan will often be shorter, usually no longer than 5 or 10 years.

It's essential that you check all the terms and condition with a fine-toothed comb before entering into any loan agreement.

It's also important to remember that whether your loan is secured or unsecured, court proceedings will still be brought against you if you fail to keep up with repayments on the loan. Before you take out any loan you should ask yourself whether you really need to borrow the money and ensure that you will be able to meet payment deadlines.

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Can I repay my loan early if I so wish?

You can, but you’ll be liable to pay what’s known as a "redemption penalty"

Effectively, if you repay your loan early your lender will lose money in missed interest repayments, and they will penalise you for this. Check the magnitude of any redemption penalties before signing the agreement as some can be quite large.

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