If you need to borrow a sum of money under £5,000 for a short time, then you will need to apply for an unsecured loan. These are short term loans with fixed rates of interest. A short term unsecured loan can be a payday loan, a P2P loan, or a personal loan. So what should you bear in mind if you are thinking about taking out an unsecured loan?
Definition of an Unsecured Loan
The loan is ‘unsecured’ meaning that you have not borrowed money against an asset such as a house. Defaulting on repayments means that you will not stand to lose your home, but you could be pursued by debt collection agencies, and will result in damage your credit record.
Unsecured loans will always attract a higher APR rate than a secured loan, especially if you have bad credit. However, while many unsecured loan lenders will assess your credit rating, there are also now a good number of lenders who do provide poor credit unsecured loans. If so, APR rates will be higher still, so it’s essential to shop around for the best deal.
Ideally, you should be looking to borrow only what you need for the shortest time possible. Otherwise, you are creating unnecessary debt, and racking up charges. Taking out an unsecured loan is a legal agreement, and gives you the ability to rebuild your credit record – so repay on time, clear the debt, and make sure you can afford it in the first place.