Unsecured loans allow you to borrow up to £25,000 or £50,000 and it is unsecured, meaning that there is no asset that your loan is secured against. Hence, your eligibility is based just on your ability to repay through your income, affordability and credit rating.
With rates for unsecured loans starting from 2.9% APR, we spoke to UnsecuredLoans4U to understand how to get the best rates and if there are best buys.
Best rates are available for strong credit scores
You automatically get a credit score when you turn 18 and this is a numerical value to give providers an indication of your creditworthiness and ability of repaying any future credit on time. Your credit score can go up or down based on your credit performance (how well you repay loans, bills and credit).
The higher your credit score from the three credit reference agencies (Experian, Equifax and Callcredit), the better rate you will get for your unsecured loan because you are deemed a lower risk.
You can start building up your credit score from the age of 18, using credit builder credit cards and getting used to paying off your phone bills and any other store cards or bills that you have.
In addition, try avoid opening too many credit scores, getting a joint account with someone with very bad credit and also avoid making too many applications for loans or credit cards in a short space of time since this will make you look financially desperate.
By this nature, if you have bad credit, you are likely to be charged a higher rate for an unsecured loan since you are considered higher risk. For more information, read our guide on bad credit loans.
The best rates could be from your own bank
If you bank with a high street bank like Barclays, HSBC, Halifax or Nationwide, they may offer credit facilities or unsecured loans and the rates may be preferential given that you are a customer. You could also access finance quicker and the checks are more automated because they already have a lot of your details and understand the types of transactions that you make.
Check the representative APR
The representative APR is a good indication of the cost of a financial product (loan or credit card) and is a useful way to make comparisons. However, it is noted that the representative APR is used for advertising purposes and is what at least 51% of customers will receive. Otherwise, customers may receive lower than the advertised rate or indeed much higher. So do not be surprised if you get a rate different to the one advertised – and you may even find that the rate you do get is actually lower than what another cheaper lender was offering.
Try repay early if you can
All unsecured lenders allow you repay your loan early, any at point, and many do not charge early repayment fees, unless it is within the first month or two.
But repaying early will accrue less interest overall, which makes senses, if you loan is 12 months long, you will pay more interest than if it were only 6 months long. So whilst applying for a longer term loan is useful, if you find that you have the means to repay your loan earlier than expected, you could save a few hundred or thousand pounds as a result.