The best way to use an unsecured loan

Unsecured loans have become very popular over the years, and every year many people decide to take out one of these loans for one of a range of purposes. People use unsecured loans for all sorts of reasons, ranging from consolidation of smaller debts such as credit and store cards to a well deserved holiday, a new car, funding a wedding, paying for education, funding Christmas, and more.

You can use an unsecured loan for pretty much any purpose, and these loans provide an effective way of borrowing for many people.

As with any type of finance when you take out an unsecured loan you need to ensure that you can keep up with repayments, as defaulting on repayments could result in your credit rating getting damaged, which could impact heavily on your financial future in terms of being able to get any sort of finance in the future.

No matter what sort of finance you are thinking of taking out you should always give careful consideration before making any commitment, and unsecured loans are no different. There are a number of commonly asked questions that can help you to learn more about this type of loan, and this includes:

What is the difference between an unsecured and a secured loan?

An unsecured loan is a loan that is based on contract and is not secured against any asset, hence its name. Therefore you will not risk any of your assets when you take on an unsecured loan.

A secured loan on the other hand is secured against an asset, which is usually the home, and therefore borrowers could be putting their homes at risk if they default on repayments on a secured loan.

Who is eligible to take out an unsecured loan?

An unsecured loan is available to both homeowners and non-homeowners, unlike a secured loan, which is only available to homeowners because it is secured against the home.

The lending criteria operated by the lender will further determine your eligibility, and amongst the factors that may be taken into consideration are your financial status, your employment status, your income, your outgoings, any other financial obligations, and your age.

I have bad credit – can I get an unsecured loan?

Many lenders that offer unsecured loans will not consider any applicants with poor credit particularly in the current financial climate where lenders are less willing to take risks.

Those with very bad credit will not qualify for an unsecured loan with most lenders, although those with simply blemished credit may be eligible. There are some lenders that offer unsecured loans to those with damaged credit, but often the interest rates charged can be very high.

What are the borrowing levels like with unsecured loans?

The borrowing levels with unsecured loans are generally considerably lower than those offered with secured loans. In general unsecured lender will allow you to borrow up to £25,000, although some offer higher borrowing levels. However, the exact amount that you will be able to borrow will depend on a number of factors, such as your income and financial status.

What sort of repayment periods do unsecured lenders offer?

Again, the repayment periods offered by unsecured lenders are usually a lot shorter than those offered by secured lenders. Most unsecured lenders offer up to five years by way of repayment periods. However, you may find some lenders that now offer repayment periods of seven or even ten years.

Where can I apply for an unsecured loan?

Unsecured loans are available from a wide range of lenders, from high street banks and building societies to Internet only lenders. You can therefore apply for your unsecured loan in a variety of ways depending on which lender you are going through.

The choices include calling in at the lender's officers or the local branch of the bank, calling the lender to make a telephone application, or easiest of all making an online application if the lender offers the facility to do so.

What are the benefits of an unsecured loan?

The benefits of an unsecured loan are many. Firstly, you don’t have to be a homeowner in order to get an unsecured loan. Also, you can get some competitive deals on unsecured loans, with a wide range of lenders.

Most importantly an unsecured loan is not secured against any asset, and this means that you will not risk losing your home or other assets in the event that you default on repayments, although your credit will be badly affected if you do this.

Are there any disadvantages to these loans?

The main disadvantages are that these loans are generally not available to those with poor credit, and that the borrowing levels and repayment terms are lower than those offered with secured loans.

Source:http://www.thriftyscot.co.uk/money/112007/the-best-way-to-use-an-unsecured-loan.html