A Guide to Borrowing Unsecured Loans

by : Rami Nseir

An unsecured loan is a cash advance made with no collateral in lieu of payment. Whilst this is an advantage for borrowers who need instant cash or for borrowers with no collateral to put up against secured loans, this does make it high risk for the lenders who as a result will charge a higher interest rate compared to other secured loans.

Interest rate or APR (annual percentage rate) is the 'rent' paid to borrow the money. It is the lenders compensation for foregoing other uses of their funds. Different lenders will offer varying interest rates. Additionally each lender will offer varying interest rates to different individuals depending on their circumstance and credit history.

Interest rates can also be fixed or variable over the lifetime of the loan. Fixed interest loans mean that your loan repayments are set and fixed from the day the loan is received so borrowers will always know exactly what has to be paid back each month. Variable interest rate loans have repayments that fluctuate inline with the Bank of England Base Rate. This is ideal when the Base Rates are low and can hurt if Base Rates are high. As a general rule fixed rate loans are preferred but this can also depend on your personal circumstances.

It is, therefore, essential that when seeking a personal unsecured loan borrowers search for the lender that will offer the lowest APR on the requested loan amount. There are numerous lenders that offer an online that will calculate how much your monthly loan repayments will be. This will allow borrowers to work out if they can afford the loan and ensure that they can keep up the repayments.

Additionally, many lenders now offer online loan application services. Once borrowers have found the lender with the lowest interest rate it is always worth checking their website for an online application form. Many loan lenders now also offer instant decisions online, so this is a perfect way to obtain an unsecured loan with the least amount of hassle.

Borrowers should also seriously consider a loan protection plan. This is insurance offered in case borrowers' circumstances change and they are unable to make their monthly payments. Though sometimes these may be a relatively expensive, many lenders now offer varying degrees of payment protection insurance so it is recommended that borrowers protect themselves if they can.

To apply for a loan online, borrowers will require their bank details, their permanent address for the last three years and proof of income.