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Unsecured loans
Unsecured Loans Explained

There are two main types of loans available to borrowers—secured and unsecured loans.

A secured loan demands that an asset, usually the borrower’s home, is used as collateral. If the borrower fails to make repayments, he/she could lose his/her home.

An unsecured loan does not require any collateral. However, the borrower must have a good credit history to obtain an unsecured loan.

Quick facts about unsecured loans:

  • Many lenders of unsecured loans or unsecured personal loans limit their lending to no more than $15,000 to $20,000.

  • The term most unsecured loans last is usually up to 5 or 10 years.

  • Unsecured loans can normally be processed quickly—often in a few days—as there are no collateral arrangements to make.

  • Unsecured loans normally carry a fixed term and a fixed interest rate.

  • Unsecured personal loans can be used for anything—a new car, a luxury holiday, home improvements, or debt consolidation.

  • Most unsecured loan lenders are satisfied to grant you funds as long as you are gainfully employed and have a permanent address.  

Who offers unsecured loans?

  • Online loan providers

  • Banks and Credit Unions

  • Specialist Lenders  

Many online loan providers offer favorable deals. Some can tell you on the very same day if your application has been approved. To apply for an unsecured personal loan online, you may need to fill an online enquiry form, specifying details like the purpose of the loan, amount required, and credit history. As you are not securing the personal loan against an asset, there should not be complicated forms to complete. On approval, funds are usually transferred to your chosen account quickly and efficiently.

If you are self-employed or if you are a student, you could approach a specialist lender who may be more willing to grant unsecured loans to high-risk borrowers. 

Here are some pointers for unsecured loans:

  • Do not borrow more than you can afford to pay back.

  • Assuming there are no large penalties involved, repay the full amount of the loan as soon as you can possibly afford to.

  • Always read the small print to check for any hidden costs and any terms which may make your unsecured loan agreement invalid.

  • Think about taking out appropriate insurance coverage just in case you should fall ill or lose your job.

  • If you have difficulties repaying, act promptly and contact your lender immediately. They are more likely to be supportive if you are honest and open.

  • Remember that you can be credit blacklisted if you default on payments for an unsecured loan. This could affect any future mortgage or credit card applications.

Remember to shop around and carefully examine the repayment terms, penalties, and interest rates on your unsecured personal loan. Is the interest charged daily? Will capital repayments bring down the amount of interest and period of the loan? Understanding all these details will help you get the best unsecured loan available.

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