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What is an unsecured loan?
There are quite a few different types of loans out there, and all the names can get a bit confusing sometimes. To make it even more overwhelming, some loans you’ll know by a number of different names too.
Often referred to as a personal loan, an unsecured loan is – in a sense – the opposite of a secured loan. A secured loan means you need to be a homeowner as the loan is secured against your property, but an unsecured loan is not secured against anything.
This time it’s personal
Unsecured (or personal) loans tend to be for relatively small amounts, of anything between £1,000 and £25,000. You usually take the money out and repay it over a relatively short term.
Although they are typically for smaller sums than you would borrow with a secured loan, your credit history is more important when applying for an unsecured loan. Because your home isn’t used as security, the lender has no guarantee they’ll be able to get the money back if you can’t repay it. For this reason, your credit history plays a bigger role.
Your credit history is the best indication of how well you have managed credit in the past. It stores information about money you’ve borrowed, as well as any times you have missed payments or defaulted on a loan or mortgage. Not only will this show up, but mobile phone contracts will be on there, and missed utility bill payments sometimes show up too.
So, if your credit history is below average or poor, you may find it difficult to get an unsecured loan. If you’re unsure about your credit history, a good place to start is by checking it through one of the free services ClearScore or Noddle.
What you can use it for
Just what you decide to spend the money from an unsecured loan on is your decision, but common uses include things like home improvements, buying or repairing a car, debt consolidation and weddings.
At Ocean, we offer unsecured loans of between £2,000 and £5,000 at 44.9% APR Representative. The application process is quick and simple, and you’ll get an instant decision once you’ve applied. We may be able to find an unsecured loan for you if you’ve struggled with credit in the past, but it may be at a higher interest rate.
If you have a poor credit history and own a home, you may have more luck when applying for a secured loan instead. Although it’s important to remember that missing repayments on any loan can damage your credit history and cost you money in penalties and charges, doing so for a secured loan risks you losing your home.
Unsecured loans typically have higher interest rates, but because you usually pay them off over a shorter period, you may pay less in interest overall than with a secured loan.