That fact that the lender does not hold security means that it would be more difficult for the lender of the unsecured loan to repossess your home or car should you fail to keep up with the loan repayments. The lender is solely relying on the borrower’s ability in being able to pay back the full borrowed amount plus interest via instalments.

The amount which you can borrow for an unsecured compared to a secured loan can be considerably less because no security is held, usually the amount available is limited for an unsecured borrowing and can range from £500 to £25,000.

Repayments periods are also limited for unsecured when compared to secured loan repayment periods and these can range from anywhere between six months and ten years.

Unsecured loan offerings can be obtained online as well as in person from banks, building societies, now even large supermarket chains are getting in on the act.

People can chose the unsecured option for ease especially when they are unable to apply for a secured loan as perhaps they maybe a tenant living in rented accommodation and therefore not a homeowner. Also the fact that the borrowings can be used for almost anything such as a new car, a wedding, a luxury holiday, and even for some home improvements makes the unsecured option appealable to many.

Like with all loans there are things to consider for the unsecured type and they are:

Invariably unsecured loans can be more expensive that secured loans as the lender does not hold any form of security, also as said before the repayment periods are limited and therefore shorter.

As the lender has no actual guarantee that the bower can repay the loan, interest rates on unsecured loans are traditionally higher covering the cost of insurance policies which the lender takes out to cover themselves should the bower default on the repayments.

The lender will invoke the terms of a legally binding credit agreement and pursue the borrower through the legal system should the borrower default in totality on the loan.

Also lenders are by law obliged to tell you how much they charge for this type of financing and this is worked out as an annual percentage rate (APR). You should ask and be clear if the APR figure which they may quote you is ‘typical’ i.e. is what everyone is charged.

It would also pay you to find out if the rate quoted is a fixed rate for the full term of the agreement or a variable rate which will vary with the base rate, as well as knowing if there is any form of early repayment penalty involved with the agreement.