Unsecured loans

When looking for a personal loan, borrowers normally have two options to choose from - unsecured personal loans or secured personal loans. Unsecured loans are loans where the borrower does not have to officially put down any collateral against the loan. They are open to both homeowners and tenants, although some providers of unsecured loans prefer to deal only with homeowners. The amount you can borrow on unsecured loans is generally limited to a maximum of Ј25,000. It is also unlikely that you will be able to obtain an unsecured personal loan for amounts of less than Ј1000.

Secured loans on the other hand provide borrowers with the ability to borrow more than Ј25,000 on a personal loan. They are almost exclusively open to homeowners as a form of collateral is needed to place against the loan. In most cases this collateral is the borrower's home or equity in the borrower's home.

Both secured loans and unsecured loans can be arranged through a large variety of lending sources, including high street banks, Internet lenders and building societies. With so many sources to choose from it can sometimes be difficult to make the decision on who to obtain your loans through. Here are some points to consider in order to help you make that decision: -

APR - The APR is the annual percentage rate - i. e. the rate of interest that you will pay on unsecured loans once any introductory rates expire. The APR will essentially dictate how much your unsecured loan will cost - the lower the APR then the less you will end up paying for your unsecured loan. You should also watch out for APR charged on a sliding scale. Some loans companies only offer their headline APR rate once the borrower commits to an unsecured loan of 'x' amount. Smaller loans are often charged at a much higher APR, which can be more than triple the headline rate.

Fixed or variable rates - Most unsecured loans are available on a variable APR. This means that the interest rate may go up or down to reflect changes in the base rate as set by the Bank of England. However, some loans companies are offering unsecured personal loans at fixed interest rates. The fixed rates are initially higher than the variable rate, but will protect you from future increases in the standard APR rate across the life of the unsecured loan.

Credit arrangement fees - Some lenders of unsecured personal loans will charge a credit arrangement fee and administration fee for setting up your loan. Other lenders may waive one or both of these fees, saving you money.

Online application form - Does the lender have a user-friendly online application form? Using an online application form is often the quickest route down which to apply for an unsecured loan.

Processing time - How long will it take for the lender to give you a decision on your application? Some lenders offer instant decisions on unsecured personal loans.

Loan payment protection - Most lenders offer to protect the payments on your unsecured personal loan in the event that you are made redundant or are unable to receive an income because of illness. The cost of loan payment protection can vary significantly between lenders so if you are considering taking out loan payment protection make sure it is not going to cost you an arm and a leg!