An unsecured loan is also called a tenant loan, a signature loan or a personal loan – they are all the same thing. Quite simply they are loans that are granted to an individual on trust and do not require any form of collateral to be signed over to the lender as a guarantee that the loan will be repaid.
There’s no security needed and so you don’t need to be a homeowner to apply for an unsecured or personal loan but instead the lender relies on the promise of the applicant to pay it back. Of course, if you do default it doesn’t mean that the lender has no legal options … they do!
The term unsecured loans applies to any loan that does not require any form of property as guarantee – for example … it could be a payday loan of £500, a cash loan of £100 an instalment loan of £2000 or a personal loan of £15,000 – these are all classed unsecured loans. Generally speaking though we associate it with a typical loan of between £500 and £15,000 or so and with a repayment term from 1 to 5 years … larger, medium term loans.
Obviously an unsecured loan represents a risk to the lender and so a credit check will be carried out and interest rates set appropriate to the perceived risk. Interest rates will therefore usually be higher than if you were providing some form of guarantee or security.
A bad credit may not prevent you from obtaining such a loan but again interest rates may be significantly higher as a result of the further increase in risk to the lender. The bad credit market is a growing market and so there are an increasing number of lenders now who specialise in this area but keep an eye on the cost of borrowing.
Unsecured loans are the most popular form of borrowing – back in 2006 some 22% of households had some form of unsecured debt … it’s that widespread.
A typical unsecured loan will be available up to about £15,000, possibly more if your credit history is good and circumstances dictate. Anything more than this and you may have to look at providing some form of security.
Because they’re granted to you as a personal loan the money can be used for any purpose – debt consolidation, home improvements, a new car, a holiday, a wedding … the list is endless.
Always shop around for the best deal as terms, conditions and interest rates can vary significantly. Consider using a broker also – they will work on your behalf to find the right loan for you and at the best rate available. Always make sure any loan is affordable and right for you.