Personal Unsecured Loans

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What are Personal Unsecured Loans?

If you need to borrow a rather small sum of money, personal unsecured loans allow you to receive funds without requiring collateral. That is, the lender won't need to take any of your property as security.

This can be handy if you need cash for smaller expenditures, such as a holiday trip, home renovation or if you want to consolidate existing debts.

At the same time, Personal Unsecured Loans allow you to lend larger sums than with a credit card. As no security is required, tenants and non-homeowners qualify for Personal Unsecured Loans just as well as property owners.

So, for a Personal Unsecured Loan, you borrow money from a bank or private lender and then repay it in regular installments until it is paid back in full, including the interest rate or so called annual percentage rate (APR) that you agreed on upon entering the contract.

How to Personal Unsecured Loans work?

Lenders of Personal Unsecured Loans take a rather high risk without a property security, hence they usually take higher interest rates and tend to inform themselves about the personal circumstances and financial situation of the borrower before granting an unsecured loan.

Factors to be taken into account are age, employment or homeownership as well as your overall ability to repay a loan, which means that lenders are likely to look at your monthly outgoings and conducting a credit search. If this is your first ever loan, lenders may require an additional security, such as a guarantor on the application, in order to be sure that all payments will be met.

Due to the lack of a security, unsecured loans normally do not exceed sums of £25,000. So, if you require a higher loan, you need to consider Secured Loans instead.

Normally, applying for Personal Unsecured Loans is fee of charged, however, some providers may charge you an arrangement fee, which will increase the costs of the loan.

The repayment duration for unsecured loans is usually predetermined when you enter the agreement and take normally up to 10 years on average, depending on the amount you receive and the conditions of the loan.

You will be able to find loans with both, variable or fixed interest rates. If you are unable or choose not to make the repayment, the money lender can go to court in order to retrieve their money. If you miss a monthly repayment, this will also have negative repercussions for your credit history and your ability to receive future loans.

Some providers may offer payment protection insurances (PPI) along with your loan, which covers your repayments in cases of emergency, when you are unable to pay.

Moreover, with many Personal Unsecured Loans, you have a 14 day so called cooling-off period starting on the day when you sign the loan agreement. Within this term, you can still cancel the agreement and pay back the entire sum and interest within 30 days.

Top Tips before choosing a Personal Unsecured Loan

The large market for unsecured loans offers the advantage that they are often fast and easy to arrange and there exists a large amount of different lenders you can choose from. Shop around for the best deals and see which interest rates other lenders offer; always try and get the lowest interest rate.

  • Take into account that Personal Unsecured Loans may have higher interest rates than other types of loans, due to a lack of security provided by a house or other property. When planning to lend only smaller amounts around £1,000, consider other options of money lending, such as using a credit card with a more favorable interest rate.
  • Some providers may offer you lower interest rates if you increase the amounts of money that you borrow. Keep in mind that having to repay a larger amount of money will extend your repayment time and hence can drastically increase the amount of money you owe. Only lend as much money as you really need.
  • If you are planning to repay your loan in full at some point or increase your monthly repayment rate, watch out for a loan that does not entail a repayment fee, or if you cannot avoid it, try and find the lowest repayment fee.
  • Be aware that not all clients get the attractive interest rates which are advertised with the loans, as you need to qualify for them with your credit history. Many lenders limit the availability of top rates to selected borrowers with a perfect credit history. With a less good history, you may only be eligible for higher interest rates than those advertised.
  • To avoid fees and penalties, always check the terms and conditions thoroughly before making your decision.
  • If you want to make a budget plan and know what you are getting yourself into, look for a Personal Unsecured Loan with fixed monthly repayment amounts and a fixed interest rate. This allows you to keep better track of your finances.
  • If you have problems with your loan or the conditions you agreed on are not fulfilled, you can either complain to the loan company or to the Financial Ombudsman Service.
  • A great advantage of Personal Unsecured Loans is that none of your material property, such as a house or car, is at immediate risk of being sold or repossessed. Take this into account when thinking about the amount of money that you are planning to lend.