Unsecured loans are the loans where the lender has no authority to claim on the borrower's property, even if the latter fails to repay the loan amount fully. The lender needs to rely solely on the assurance of the borrower. He offers the loan against the signature of the borrower. So, in this type of loan, the credit history and the repayment capability of the borrower plays important role.



Primarily this type of loan is short term loan and offers relatively smaller amount. The amount one can borrow is between £500 and £25,000. Many lenders tend to limit the highest amount to £25,000 as because the borrower does not secure the money against any property. The repayment period of unsecured loans generally fluctuates between six months to ten years. In some cases, both the loan amount and the terms may change.

On one hand, Unsecured loans are only favourable option for people who are not in a position to offer collateral. Tenants and those who are living with their parents find it as a better alternative for credit cards and other such type of high interest plastic money. On the other hand, it works as an alternative for the homeowners who do not want to use their home as security. This loan offers them an opportunity to stay out of risk.

Unsecured loans have some really useful benefits. But the fact that cannot be ignored is that it can be more expensive than a loan secured against any property. It becomes expensive in the sense that the lender charges higher interest and allows a shorter repayment period. This is because he has no guarantee that he will have the money back. Therefore, sometimes the lenders take out insurance policies to protect them against default etc. To cover the cost of the insurance policy and compensate the risk they undertake, lenders charge high interest. However, this pitfall can be avoided with through smart shopping.