What Is an Unsecured Loan?
An unsecured loan is a personal loan for bad credit that allows you to borrow money without having to put up any collateral in exchange. This means that unlike secured personal loans, you don’t have to worry about any of your valued assets, eg. your vehicle or home, being repossessed, even if you miss a repayment.
However, since the burden of risk is higher on the lender, most UK unsecured loans will usually come with low loan limits to help minimize the risk of default. As a result, they are usually meant to help borrowers deal with small but urgent expenses.
And in some cases, they can also be used to consolidate your debts into one monthly payment to help reduce higher interest debts. These personal loans for bad credit in the UK come with repayment terms that allow you to pay off your debt in regular instalments until the full amount, plus interest is repaid.
However, in order to successfully qualify, unsecured loan direct lenders will usually assess your level of creditworthiness by reviewing your credit history before determining how much money you can actually borrow.
You should also keep in mind that while you can take out loans unsecured even with bad credit, failure to make your repayments on time could result in penalties, and even negatively damage your credit rating even more.
Pros and Cons of an Unsecured Loan
The biggest benefit of applying for an unsecured loan is that even with a bad credit score, you can still borrow money without having to worry about putting up any security, like your home or car. Moreover, the loan limits are often higher than what you would normally get with a credit card.
Furthermore, since the interest rates on a personal loan for bad credit are usually fixed, this, in turn, should make it easier for you to keep track of your finances, as well as meet your repayments on time. These loans can also be used to consolidate your debts, which allows you to simplify your finances by only having to make a single payment per month.
On the flip side, the problem with an unsecured loan is that they usually have higher interest rates than you would usually get by applying for secured loans. Moreover, some loans for bad credit tend to have early repayment charges, which can make things difficult, especially if you find yourself able to repay the unsecured loan direct lender much earlier than expected.
Aside from that, most unsecured loans for bad credit direct lenders only in the UK will usually review your credit history when determining how much you can borrow. This means the lower your credit score, the lower the loan limit and the higher the interest rates that you are offered will be.
Types of Unsecured Loans
Payday loans are a type of unsecured loan that usually has to be repaid in full by the time your next paycheck arrives, which is where the term 'payday' comes from. These loans can often be applied for online and most payday lenders are even open to accepting borrowers with a bad credit history.
However, due to their short repayment period and exceedingly high interest rates, borrowing money from unsecured loans for bad credit direct lenders only is not recommended unless you have exhausted all other loans' unsecured options.
Personal Bank Loans
Unsecured personal loans are usually backed by the borrower's creditworthiness, which means that you need to have a good credit score, in order to qualify. And while most of these loans will usually max out at £25,000, there are some banks that may be willing to lend up to £50,000 to existing customers.
Plus, they usually come with fixed interest rates and can be repaid in monthly instalments, which makes them more affordable and easier to manage.
Personal Loans with Alternative Lenders
If you are unable to get unsecured loans in the UK from a traditional bank, then there are several suitable online lenders on the market that would be willing to provide you with a line of credit.
And the good thing about most unsecured loan direct lenders is that they are often open to the idea of lending money even to those with bad credit. However, these loans will tend to also come with high interest rates, due to the increased level of risk for the lender.
Short-term loans usually need to be repaid over a short period of time, which is often within a few months up to a year.
And while these unsecured loans with bad credit tend to be offered at higher interest rates, they are a popular choice for many borrowers because they are much easier and faster to access, since your unsecured loan application can be quickly processed online and granted, all within the same day, if not within hours.
Peer-to-peer unsecured loans are a form of direct lending that involves individuals or businesses borrowing money without having to use an official financial institution or an unsecured loan direct lender as an intermediary in the deal.
This type of unsecured loan is usually conducted through online platforms that will help to match lenders with potential borrowers. And while these loans unsecured tend to come with favorable interest rates, they also usually come with rather strict lending criteria.
Things to Remember Before Applying for Unsecured Loans
If you are looking to take out unsecured loans with bad credit, it is important that you only borrow as much as you need, and aim to repay it as fast as possible, which should help to keep you from falling into debt trap.
Furthermore, it is important to remember that unsecured loans direct lenders will usually take into consideration your credit history while reviewing your credit application.
This means that while having a bad credit score will not necessarily impact your ability to get unsecured loans for bad credit in the UK, it may end up affecting your repayment terms, as well as limit the amount you can borrow with an unsecured loan.
Moreover, failing to repay an unsecured loan can have serious consequences for your credit report in that you can be taken to court and if handed a County Court Judgement (CCJ) it will negatively impact your credit rating and make it even harder to secure loans in the future from any lender.
It is for this reason that you should always make sure that you have factored in your repayments into your monthly budget. You should also keep in mind that the longer you take to repay the loan, the more interest you will end up having to pay, thereby making the loan even more expensive.
In other words, if you choose a loan with a shorter term, you may end up paying more each month, but the loan will usually come with less interest overall.
Applying for an Unsecured Loan
You can apply for bad credit unsecured loans by using PaydayLoansUK, which allows you to conveniently browse for and connect with suitable unsecured bad credit loan direct lenders that can offer you the most favorable interest rates in the market.
And all you need to get started is to input the amount of money you need to borrow, fill out the online application form, upload the required documents, and wait for your unsecured loan application to be reviewed.
You can apply for a maximum of up to £5000 and the lender will usually conduct creditworthiness and affordability checks, such as looking at your credit report, as well as your monthly income and expenditure, in order to determine what how much you can qualify for and what loan terms to offer.
If approved, you can accept the loan, and depending on how much money you borrowed, as well as your bank’s processing times, the personal loan for bad credit should be deposited into your account within 24 hours. You should also remember that most unsecured loan direct lenders come with their own eligibility criteria, so keep that in mind before applying for unsecured personal loans.
Frequently Asked Questions
1. What are the criteria to get an unsecured loan?
Most unsecured loan direct lenders will usually require you to be over 18, a UK resident, and have a steady income stream, as well as an active bank account and debit card, in order to be eligible for a line of credit.
They will also examine your credit history and personal finances in order to determine if you can actually afford to make the repayments on the loan amount you're requesting before making a decision on your unsecured loan bad credit.
2. What can I use an unsecured loan for?
If you are approved for personal loans for bad credit in the UK, how you decide to use your unsecured loan is up to you. For instance, you can use that loan to finance car repairs, home improvements, or even to help pay off unexpected bills.
You can also use your unsecured personal loan to consolidate any current debts that you may have, which can be a great way to simplify your finances, as well as reduce excessive interests rate costs since you will only need to make one large payment to one lender rather than multiple lenders.
3. Can I get an unsecured loan with no credit check?
No. Credit checks are mandatory, as dictated by the Financial Credit Authority (FCA), which regulates the financial services industry in the United Kingdom. This means that all legitimate lenders will usually conduct a credit check on all loan applications.
And in the event that you do come across any unsecured loan lenders that offer no credit checks, it’s often best to avoid borrowing from them, for the sake of your own financial security.
4. Can I get an unsecured loan with a bad credit score?
Yes. Even with a bad credit history, you should still be able to secure yourself loans for bad credit online, since most unsecured loan lenders are usually more interested in your ability to repay the loan.
This means that as long as you are employed or can at least prove that you have a steady income stream, then you should be able to successfully apply for unsecured personal loans. However, keep in mind that the lower your credit score is, the higher the interest rates and lower the loan limits you are offered will be.
5. Does an unsecured loan need a guarantor?
You don’t always need to have a guarantor when applying for unsecured bad credit loans, but many unsecured bad credit loans direct lenders will usually prefer you to have one because they would essentially act as an extra layer of security that reduces the risk of default and provides peace of mind to both sides.
However, keep in mind that taking out an unsecured loan can pose a great financial risk to your guarantor, as well as their credit score, which is why you should only ever take out an unsecured personal loan that you are confident you can afford to repay on time.
6. What are the differences between secured loans and unsecured loans?
The difference between secured and unsecured loans comes down to collateral. With secured loans, you will usually need to put down some form of security on the table, like your home or car, before getting a personal loan for bad credit.
And if you fail to repay your loan on time, the bank will usually seize your valued asset as payment. On the other hand, unsecured loans don’t require you to put up any form of security in return. However, since the level of risk for the lender is higher, most unsecured loans tend to come with high interest rates.