An unsecured loan is a personal loan which, as the name suggests, does not require the borrower to put up any security against it. People who opt for unsecured loans are, typically, those who aren't in a position to offer collateral (i.e. non home owners, adverse credit records, CCJ's, mortgage arrears, debt issues).
Of course, this means that the lender takes more risk when they lend to you. In order to balance things out, you are most likely to be charged more interest on an unsecured loan in order to pay them back for the risk that they are taking. Although adverse credit records, CCJ's, mortgage arrears or debt issues are unlikely to affect your unsecured loan application, it is generally accepted that the better the credit record, the better the loan terms.
An advantage of taking out an unsecured loan is that your application can be processed a lot quicker as there is no need to value your collateral.
A disadvantage is that it is harder for you to get approval for an unsecured loan. As no security is offered the lender will be more careful about whom they lend money to. If you have a bad credit history then you can still actually get an unsecured loan but you can expect again to be charged a lot of interest. You can find these in the back of the tabloid newspapers.
Once you have the loan money sent to you – don't think that your property is completely safe whatever you do. Lenders will have a lot less patience with you if you start defaulting on your payments. Court proceedings can be taken out on you and in the worst case the court can order your home to be sold in order to pay the loan provider back. So, you should still make sure that you can make the loan payments comfortably; otherwise an unsecured loan could become a secured loan.
Please note these articles do not constitute regulated financial advice, which recommends a course of action based upon the specifics of your personal circumstances. These articles are intended to provide general personal financial information. We urge you to consult an Independent Financial Adviser (IFA) before making any important decisions about your finances.
YOUR HOME IS AT RISK IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR OTHER LOAN SECURED ON IT