Compare Unsecured Loans

What is an unsecured loan?

An unsecured loan is a type of borrowing that doesn’t require you to use an asset – such as your home – as collateral. As with most types of loan, you will need to repay the loan in full with interest, usually by making regular monthly payments to your lender. Unsecured loans are also referred to as personal loans.

You may find that you are able to borrow less money and at a higher rate than if you took out a secured loan, but unsecured loans are also considered less risky because you aren’t putting an asset such as your house on the line as a guarantee.

How to choose an unsecured loan

If you’re considering taking out an unsecured loan, you’ll need to decide which type is right for you. An unsecured loan is the opposite of a secured loan in that you are not putting forward an asset, such as a property, as security or collateral. As such, they come with a higher risk to the lender and can therefore be more expensive than a secured loan. However, they are readily available as a product and a common way of borrowing. Unsecured loans are also known as personal loans.

Unsecured loans differ in cost from lender to lender. The amount you pay will also depend on how long you want to borrow for and your borrowing history. We want to help you understand your options, which is why we’ve created an unsecured loans comparison table and information guide below. You can check your eligibility before you apply, so you can see which unsecured loans you’re likely to be accepted for. This won’t affect your credit score and means there is less chance of your application being rejected.

Choosing the right type of unsecured loan

Deciding that you want to take out an unsecured loan is the easy bit. With more choice than ever before, navigating the marketplace can be overwhelming.

The first step is to find the type of unsecured loan that is best for you. The most suitable option will likely depend on your credit history, how much money you need to borrow and how long it will take you to repay the debt. Lenders should only lend what they are confident you can repay, so there might be limitations on how much you can borrow.

Types of unsecured loan

• Bank loans: High street banks provide unsecured loans, but you may find a better deal by comparing providers online rather than visiting a branch in person.
• Unsecured loans with alternative lenders: The most suitable unsecured loan for you may not come from a traditional bank. There are a whole host of online lenders on the market, so it is worthwhile comparing all the options out there.
• Short-term loans: If you need quick access to a relatively small amount of cash, a short-term loan may be useful – though interest rates will likely be higher than one with a longer term.
• Payday loans: These ultra-short-term loans can come with extremely high interest rates and are usually repayable in a single payment.
• Peer-to-peer: Peer-to-peer lenders are matched with borrowers through dedicated online platforms. Interest rates can be favourable, but lending criteria tend to be quite strict.

Comparing unsecured loans

Once you believe that an unsecured loan could suit your requirements, it’s time to start comparing unsecured loans to find a product that is right for you. The two most important factors are the loan amount and the repayment terms.

You may want to prioritise repaying your loan quickly to minimise the amount of interest you will end up paying on the whole debt. Alternatively, you might need to spread the repayments out over as long a timeframe as possible to make them more affordable. This can lead to a lower monthly outlay, but will probably cost you more in interest in the long run.

A simple way to compare the cost of an unsecured loan is by the annual percentage rate (APR). By law, lenders are obliged to tell you the APR, but it is important to remember that ‘representative APR’ means that only 51% of applicants are offered the interest rate displayed, meaning that you could be offered a loan with a higher APR than the lender is advertising.

» MORE: What you need to know about APR

Eligibility for unsecured loans

In order to qualify for an unsecured loan, you will usually need to be a UK resident and at least 18 or 21 years old, hold a UK bank account in your name and earn over your lender’s stated minimum income, which will vary between providers. You may also need to prove that you currently don’t have any county court judgments (CCJs), individual voluntary arrangements (IVAs) or are bankrupt.

For unsecured loans, providers are expected to make sure you can meet the monthly repayments before they lend to you. This might mean you are not eligible to borrow the amount of money you would like, though you could qualify for a lower amount.

Different lenders will have their own eligibility criteria for unsecured loans, so how much you can borrow and the interest rate will vary. You can check your eligibility without affecting your credit score by using the table at the top of this page.

Choosing an unsecured loan FAQs