Loans: Unsecured Loans

Whether you call it an unsecured loan or a personal loan, they are both exactly the same thing. It means you can borrow money without giving your lender security against it if you are unable to repay it - for example, your home or your car. As a result you are unlikely to lose your home or your car if you can't keep up with your loan repayments.

In the past rates were generally higher than secured loans but rates have dropped recently to the extent that some personal loan rates now rival standard mortgage rates.

However, lenders calculate interest rates in different ways so it's important to check how much a loan will cost you in actual pounds and pence. Don't just look for a low Annual Percentage Rate (APR) - find out the Total Amount Repayable (TAR) as well. The latter will tell you the true cost of your borrowing.

One good thing about an unsecured loans is that the interest rate tends to be fixed for the duration of the loan, so at least you can be certain that your monthly repayments won't change, even if interest rates were to rise.

While unsecured loans are 'safer' than secured loans if you default, be aware that, particularly if the loan is a large one, creditors are increasingly using a little known procedure to get their money back. If you own your own home or other valuable assets, creditors can apply to the court for what's known as a Charging Order. If granted, your unsecured loan can be turned into a secured loan, thereby putting your property at risk as it means the creditor can then go down the route of forcing a sale to get their money back.

Next article: Secured Loans

Published on November 17, 2006