A Guide to Unsecured Personal Loans

Unsecured personal loans are offered by lending institutions such as banks and building societies and are so called because the lender requires no security for the debt. They are not available for speculative purposes or business purposes. Depending on the individual lender some other purposes may also be excluded, for example the purchase of timeshare property. Below is a quick and easy guide to UK personal loans.

Choosing the right loan

Personal loans are available for a range of different amounts and repayment terms. Depending on the amount and purpose of the loan, you will be able to choose from a range of repayment periods. Larger loans such as those over £10,000 can usually be taken over longer terms i.e. 7 to 10 years. The minimum loan amount is typically £1,000 although some lenders do offer £500 and upwards. The maximum amount you can lend is £25,000, although this will vary between lenders and products.

Need a loan over £25,000? If you’re a homeowner you can consider a secured loan.

The amount borrowed is subject to an interest charge, and the interest rate applied is known as the Annual Percentage Rate (APR). Generally, it is advisable to compare the APRs of different products as a means of determining how competitive they really are. It is not unusual for lenders to offer different APRs depending on the method of application e.g. applications by telephone may receive a higher APR than those done online, so it’s well worth shopping around for the best deal.

If you are looking for a low cost loan, comparing the APR is a good place to start. Lenders do quote interest rates in different ways, and it's worth familiarising yourself with these before you start:

• A fixed interest rate will stay the same throughout the term of the loan, regardless of any changes in the bank base rate. This means your monthly repayments should always stay the same, allowing you to budget accurately.
• A variable interest rate may rise and fall in line with any changes to the bank base rate. This could result in your monthly repayments changing during the term.

In addition:

• A typical interest rate is an indication of the rate you will be offered as it is the rate that over 66% of successful applicants receive. The exact rate offered to you will be dependent on the loan amount and term and on an assessment of your personal circumstances.
• A set interest rate is offered to all successful applicants, regardless of the risk they present and the loan amount and term.

Although lowest APR is one factor that contributes to a ‘cheap’ loan, you should always pay attention to the small print as any additional costs will be found there. Some lenders do apply an early settlement charge (also known as a redemption penalty) if the debt is repaid in full before the agreed end date. This can be up to 2 months interest so it pays to check this out before you commit. If you think you'll clear the debt before the end of the term then your best bet will probably be a loan with no early settlement costs, even if the APR is slightly higher. Whatever you decide, you’ll need to do your sums before you sign on the dotted line.

Personal loans are repayable on a monthly basis. If there is a degree of flexibility then the lender may permit over-payments and lump-sum payments, both of which allow you to clear the debt over a shorter time period than first agreed. If your loan is a truly flexible product then you may also be able to withdraw funds from the account on a rolling basis, providing you stay within your credit limit. Lenders also offer repayment holidays or payment breaks, allowing you to take a break from your monthly repayments either at the start of the loan (known as 'deferred repayment') or at an agreed point during the term. Interest will continue to accrue on the outstanding balance and this may result in increased monthly payments so your debt is still repaid over the term agreed at the outset.

Getting accepted for a personal loan can sometimes prove difficult if you’ve got bad credit, have changed addresses frequently, have no previous credit history or are self-employed. There are lenders who can help those who need 'bad credit' loans and those who have difficult personal circumstances. The APR is likely to be higher than that offered by a standard personal loan provider, but the chances of getting accepted are far greater.

If you’re a homeowner with ‘bad credit’ or difficult personal circumstances it may be worth considering a secured loan. Click to compare secured loans.

Personal loans are governed by the Consumer Credit Act 1974. The Act contains strict regulations about how money is lent and covers unsecured loans up to £25,000 (these are known as 'regulated loans'). When taking out a personal loan you will be asked to sign a credit agreement, and you'll be bound by it's terms. As extra protection for both yourself and the lender, insurance policies (known as payment protection insurance) are available and these will cover your repayments in the event of sickness, accident or unemployment. In the event of your death your debt could even be repaid in full. Although beneficial, these policies can be costly with both the cover and cost varying between lenders. You should always check what a policy includes and excludes, as this may affect your decision to take it out. Stand-alone policies are available and these may prove better value than the policy offered by your personal loan company.

How do I apply?

This site provides you with the facility to apply online for your personal loan. You'll notice that many of the most competitive products in the market place today (including those on our Best Buy tables) are available to you through our online application process. Providing the product has an apply icon you can submit your application via this website. This will ultimately save you time as it means you won't need to contact the personal loan companies direct. We also hold details of loans designed specifically for applicants with a poor credit history or those who have difficult personal circumstances - whatever your circumstances we can help you to find the right product.

When you apply through us you will either complete a short application form via our secure server, be re-directed to the lender's website to enable you to follow their own application process or you will be asked to submit your details for a member of our Sales Support Team to contact you. Once your application has been submitted to us, either our Sales Support Team or the personal loan company will send you an e-mail or letter acknowledging your application. If you completed our application form it will be passed to your chosen lender in order that they may process it.

What happens next?

Your application will be processed quickly and a decision communicated to you within a few days. Lenders use credit reference agencies to obtain information about you as they provide a detailed analysis of your financial position, in particular whether you have any bad credit such as County Court Judgements, defaults or arrears, details of any existing credit agreements or searches made by finance companies plus information relating to the electoral roll. If you are refused a personal loan or wish to make enquiries concerning your own credit file you can apply to the credit reference agencies for a copy of your record.

Equifax PLC

You can view your credit file with Equifax for only £12.50. They also offer easy to use online facilities to dispute errors in your credit file instantly. To find out more click here.

Credit File Advice Centre
PO Box 1140
Bradford
BD1 5US

If you do have difficulty making your repayments you should seek advice from your lender immediately. The earlier you contact them, the more sympathetic they are likely to be. If you have been refused credit or need advice with debt give our financial helpdesk a call on 0870 027 0269. Lines are open 24 hours a day. Alternatively, advice is available from your local Citizen’s Advice Bureau, the National Debtline or the Consumer Credit Counselling Service (CCCS).

Alternatively, you may wish to consider getting help from a Debt Management Company such as Gregory Pennington or Baines & Ernst. Debt Management companies approach your creditors and negotiate with them on your behalf to agree lower instalments. A single, affordable monthly payment is calculated for you based on your individual financial circumstances. Your Debt Management Company then distributes this payment to each of your creditors. A monthly charge is often included in your agreed monthly repayment for the service provided by your chosen company and terms and conditions will apply.

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Please note, we do not charge a fee for the service we provide. Our income comes from the product providers, who pay us a fee when you complete your purchase. We recommend that you read the guides available throughout the site for more information on the type of product you are interested in. You should also take time to read our Terms and Conditions, and in any case you should do so before using any of the services provided by this site.