UNSECURED LOAN best RATES 2023

when you borrow money from a bank without any collateral, it’s an unsecured loan. this means lenders don’t have any collateral to fall back on if you don’t make your payments. because lenders take a risk lending you money without collateral, they’ll typically charge a higher interest rate or more fees.

most lenders offer unsecured loans from £10,000 - £100,000, but you’d need great qualifying factors to borrow much more than £10,000 without collateral.

collateral are things like a house or car - valuable items the lender can repossess and sell if you don’t make your payments for a few months.

it’s possible to get financing without collateral, but you must have great qualifying factors and be able to afford the higher loan amount.

each lender has a different pricing structure. some strictly charge interest on your unsecured loans. however, most have at least an origination fee.

the origination fee is an upfront fee you pay to cover the cost of lending you money. lenders charge this to compensate for the riskiness of not having collateral to back up the loan. on average, lenders charge 1% - 5% of the loan amount in origination fees.

with unsecured loans, lenders take the origination fee out of the payout. so say, for example, you borrow £10,000, and there’s a 5% origination fee. so you’d pay £500, which means you’d receive £9,500 as a payout, not £10,000. however, your loan payment is based on the £10,000 loan.

of course, like all loans, unsecured loans charge interest. unsecured loans have higher rates than secured loans because of the riskiness. to get the best rate, get quotes from a few lenders to ensure you’re getting the best rate available, as the rates can get high on unsecured loans.

because an unsecured loan is riskier for borrowers, it’s important to look closely at the terms. the interest rates will be higher than a secured loan, but that doesn’t mean you should take an exceptionally high rate. instead, shop around to get the best rates from different lenders.

another important factor is the prepayment penalty. they aren’t as common today, but some lenders still charge them. if there is a prepayment penalty, you’d be charged a fee if you paid the loan early. this isn’t ideal if you plan to make extra payments to save money on interest over the loan’s term.

there is one large difference between a secured and unsecured loan: collateral. the collateral is what you give the lender access to if you stop making payments. for example, a car loan is a secured loan. you use the car as collateral. lenders determine your loan amount after determining the car’s value. your loan amount won’t be more than the car is worth. most lenders will likely lend slightly less, as they’ll require you to invest some money into it to reduce your risk of default.

with a secured loan, the lender can repossess the asset and sell it if you stop making payments. this is how they recoup the money they lost. because they have this guarantee, secured loans usually have a lower interest rate and/or better terms.

unsecured loans don’t have collateral, so they are riskier for lenders and charge higher interest rates and/or fees. just because lenders can’t repossess your assets if you don’t make your payments isn’t a reason not to pay them, though. lenders have ways to get their money back, either by sending the loan to collections or potentially filing a lawsuit.

because unsecured loans are riskier, lenders must be 100% sure you can afford the loan. therefore, the requirements may be a little stricter than a secured loan, such as the following:

• high credit scores – a credit score of 900 or higher is best to get the best rates and terms on an unsecured loan. you may qualify with a lower score but will pay higher rates and/or origination fees.
• proof of stable income – lenders must be 100% sure your income and employment are stable. it helps if you’ve had the same job for a few years and your income has increased over the last couple of years. even if it didn’t, showing stable employment will help you get the best terms.
• assets – unsecured loans don’t require collateral, but having liquid assets (checking, savings, money market, stocks, or cds) can help your case. in addition, it shows that you have money to pay your loan should your income stop.
• debt-to-income ratio – lenders will pay close attention to your debt-to-income ratio or your outstanding debt compared to your monthly income. the more debt you have, the more likely you will default on your bills. this puts the lender at a higher risk of default, causing them to deny your application or quote you higher rates and fees.

lenders limit the loan amount on unsecured loans because of their risk. most lenders allow unsecured loans of £5,000 - £25,000, although you might find some exceptions that offer higher loan amounts.

the better your qualifying factors are, the more likely you are to get approved. for example, if you have a credit score over 900, you might get approved for a higher loan amount, just like you would if you had an exceptionally low debt-to-income ratio.

the cheapest unsecured loan has the lowest interest rate and origination fees. most unsecured loans charge at least a 0.5% origination fee but always compare your options. then, look at the combination of the loan’s total interest and the origination fee.

in other words, look at the loan’s total cost before accepting it. don’t assume the loan with a lower interest rate is better because the lender might inflate the origination fee and vice versa. instead, look at the bottom line when comparing your options to find the cheapest unsecured loan.

to get the best unsecured loan, try the following:

• improve your credit score – a 900 credit score can be hard to achieve, but try to get as close as possible. a few simple ways include making your payments on time, not having a lot of debt outstanding, and ensuring all information on your credit report is accurate.
• pay your debts down – if you have other debts, like credit card debts or other personal loans, try paying them down as much as possible first. the fewer debts you have when you apply for an unsecured loan, the higher your chances of approval.
• have stable employment – show lenders you are a good risk by having stable employment and income. if you’ve changed jobs but stayed in the same industry, it still shows stable employment. the borrowers that change jobs and industries frequently pose a high risk.

because unsecured loans don’t have any collateral to appraise, the loans pay out quickly. some lenders offer same day funding if you apply by late morning. each lender has a different cut-off time. the banks that don’t fund on the same day typically fund the loan within one or two business days.

most banks wire or direct deposit the funds in your account, so you can access the funds faster.

you’ll have a payment schedule for monthly payments on your unsecured loan. these payments consist of principal and interest. this is a combination of a portion of what you borrowed and the bank’s charge for lending the funds.

most lenders allow you to make larger payments on the loan if you wish. paying the loan off faster may save you a little money in interest since the funds won’t be outstanding as long.

if you’re having trouble making payments, always talk to your creditor. most lenders have programs to help people having financial difficulties. for example, they might defer your payments to the end of the loan for a few months or divide your past due amount into smaller amounts, adding to your monthly payments. never ignore your loan, even if you can’t pay it; always talk to your lender.

however, most lenders don’t allow you to increase your unsecured loan amount. it’s not a line of credit, so if you need more funds, you must apply for another unsecured loan; however, it’s best to pay the original loan off first.