Unsecured Debt

Unsecured loans, available to you from your bank or credit union, are a kind of contract or agreement which allows you to borrow a sum of money on the basis that the debt will be paid back to the lender by the agreed-upon timeframe.

You are not required to offer any security with an unsecured loan, although the lender does still have legal recourse to seize the money you owe them by some means if you are unable to

make the repayments. Lenders may, in some cases, arrange a County Court Judgement (CCJ) against you. This is a situation that you should try very hard to avoid if possible, as receiving a CCJ would be listed on your credit report.

Especially for non-homeowners, an unsecured loan offers a flexible way to borrow money; more than you could get using a credit card. These types of loans are generally not for very large

amounts, mostly ranging from between £1,000 and £25,000. Unsecured loans allow lenders and borrowers to work out a fixed payment plan where, more often than not, you as the borrower will get a say in what time period you would prefer to repay the loan (this time period might be anywhere up to 10 years).

Lenders are a bit more selective over who they give out unsecured loans too, as they do not have the added security of an asset which they can seize in the event that you are unable to pay back the loan. Due to this heightened risk, you are in the best position to receive an unsecured loan if:

  • Your credit history is good (a good credit history illustrates to lenders that your money management skills are that of someone who is more likely to see the loan paid off)
  • Your name appears on the electoral register (Lenders use this as a method of checking your identity, so if your name is not on the register they may choose not to offer you credit. However, if you have recently moved they may accept a utility bill, mortgage details or a tenancy agreement instead)
  • You are employed (a secure job assured lenders that you will have the means to repay them the money owed)

An unsecured loan may be the right route for you if you do not yet own property, your credit history is good enough to earn you low rates of interest, and if you are looking for some flexibility in your repayment period.

You may want to consider other options if your credit rating is not good and will lead to higher interest rates, if your feel you may not be able to afford the higher interest changes, or if you think you may want to repay the loan in full before the agreed-upon time (this may lead to lenders charging an early repayment fee).

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