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Unsecured loans – a large variety for you to choose from

Unsecured loans – a large variety for you to choose from

When it comes to unsecured loans in the United Kingdom, there are a large variety available to choose from. These products are becoming more and more popular, especially as they can be secured, even if you have a bad credit score, and in some cases, are blacklisted.

Their popularity stems from the fact that you need no form of collateral to secure a loan – unless it is a logbook loan. This uses your vehicle as collateral, but you will still be able to drive it on a daily basis. Unsecured loan applications are also extremely fast and should you be successful, the agreed upon loan fee is paid into your bank account in a matter of hours.

What type of unsecured loans are available in the United Kingdom? In this article, we will take a look at a few options that you can compare should you need cash in a hurry.

Peer-to-peer loan products

This type of loan completely cuts out a financial institution or bank. Here you borrow from a lender with no middleman involved. A word of warning, many peer-to-peer lenders have varying interest rates and repayment options. Before signing for any loan, read the contract fully, including the fine print.

Payday loans

These are often an outlet for people with bad credit scores who need to secure a sum of money. Here, you agree to pay back the borrowed amount once you receive your next paycheck. Again, interest rates with these loans can be fairly high, sometimes close to 1000% APR. Missed payments also result in high penalty fees.

Instalment loans

Here a borrower agrees on a set some of money with a lending institution. This is then repaid over a period, for instance, 24 months, along with the interest accrued.

Guarantor loans

This is very similar to an instalment loan but here the lender will ask for someone to act as a guarantor for the loan. What does this mean? Well, should the applicant not be able to repay their loan, the guarantor will be expected to pay it. This provides an extra level of security for the lender, and can be offered to people with a bad credit history as a form of loan product. Because of the guarantor, interest rates and monthly repayments are often cheaper.

Logbook loans

Logbook loans are given to applicants who own a motor vehicle, truck or motorcycle. Here the vehicle itself acts as collateral should the person stop making their monthly repayments. Should this happen, the lender, who legally owns the vehicle for the duration of the loan, may repossess it. The loan amount depends on the condition of the vehicle as well as the mileage. The vehicle must be comprehensively insured throughout the loan period.

Understanding APR

Understanding APR

When it comes to credit in any form, it is essential that you as the loanee understand various aspects of how the process works and how interest rates are determined.

In this article, we will pay particular attention to something that affects all credit products – annual percentage rate (APR).

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What is APR?

Whenever you borrow money, the financial institution will apply an interest rate to the amount you have borrowed. This is normally the APR. Basically, it is the extra yearly cost your will need to pay back on top of the money you have borrowed.

Does it change?

Yes, the APR will vary according to each financial institutions operating procedures. Note, the APR rate shown for each different credit product is called the representative APR. When you apply for a certain product, depending on the risk to the lender, your final APR rate may be higher than the representative one. If you are a low-risk candidate, the APR rate might even be lower than the representative rate.

How can APR be affected?

APR is generally affected by credit scores of each individual. Should you have a bad credit score, the APR rate on a loan product that you apply for could be set very high.

Knowing your APR

If you know your APR (ask a lender for the rate they will give you), you can work out the cost of borrowing money. For example, an APR rate of 10% on a loan of £1000 means you will end up paying back £1100 over the monthly term.

This can still be influenced by the following:

  • How much you pay back each month (will you pay extra?)
  • How long it takes to finish paying off the loan

Repayments

Your loan repayments will be fixed. Make sure to pay the exact amount. Better still, pay a little extra when you can to help pay off the loan even quicker. Even if it is a small amount, over time it will save you on interest repayments.