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How Do Unsecured Loans Work?
Unsecured loan repayment options and interest rates
Unsecured loans can usually be repaid over a period of 1 year up to a maximum loan term of 10 years, although the standard maximum repayment term is 7 years.
Unsecured loans tend to have a lower rate of interest than secured loans, and there is a good choice between fixed rate and variable rate unsecured loans.
A fixed rate unsecured loan will offer fixed monthly repayments for the duration of your loan term, even if the base rate goes up. A fixed rate unsecured loan can offer a little extra peace of mind, as you will always know how much you have to repay each month.
A variable interest rate will fluctuate inline with the Bank of England’s base rate, so your unsecured loan repayments can go up as well as down.
What fees are involved with an unsecured loan?
The actual fees involved with an unsecured loan will depend entirely upon the actual loan you choose. There can be set up or arrangement fees and there can also be early repayment fees.
Many unsecured loan lenders do not charge set up fees, however it is important to find out before you apply for the loan, as they can be quite expensive.
If you know that you are going to want to repay your unsecured loan early, you may want to choose an unsecured loan that will not charge you a penalty fee for repaying your loan early.
Where an early repayment fee is charged, it will usually be 1 or 2 month's interest charges.
Who can take out an unsecured loan?
You don't need to be a homeowner to take out an unsecured loan, however you will need to have a good credit history.
Also, being a homeowner can help if you are looking to borrow larger sums of money with an unsecured loan. This is purely because having a mortgage (and managing it well) considerably improves your credit score.
How long does it take to get an unsecured loan?
Unsecured loans can take anywhere between 2 and 6 weeks to be processed. You can speed up the process by signing the contract and returning it along with any requested documents as quickly as you can.
You can also choose to fast track the unsecured loan process, although this does cost a fee, usually around £40 or £50. This fast track option will mean that your contract is couriered to you and then back to the loan lender, who will then deposit your loan amount into your bank account within 24 hours of receiving your signed contract and all required documents.
The application process...
It's a good idea to leave ample time for the unsecured loan application process, and you shouldn't commit your funds until you have received the money in your bank account.
You can fill out an application form for the unsecured loan you have chosen by going to the loan lender's website. You may receive an instant decision on your application or the loan lender will contact you soon afterwards.
Once you have been accepted for an unsecured loan you may be required to produce documentation of proof of your income, including payslips and bank statements, or your account records and tax returns if you are self-employed. If you are a new customer of the bank or building society you are taking out an unsecured loan with, you may also need to provide proof of ID, for example your passport or driving licence.
When all your documentation has been verified you will then be sent a contract for the unsecured loan which you will need to sign and return to the loan lender.
When the loan lender has received all the required documentation and signed contract your loan application will be completed and the loan lender will transfer your loan amount to your nominated bank or building society account. Unless you have chosen the fast track option, the transfer will usually take around 3 working days to be credited to your account.
You'll then have your unsecured loan money to finance your loan purpose. Spend it wisely!
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