As the term suggests, unsecured loans rely on your 'promise' to pay it back. Unlike a secured loan you will not need to pledge an asset, such as your home, as collateral for the loan so the interest rates are usually higher.
With an unsecured loan, the lender is taking a bigger risk so interest rates charged tend to be higher than those on a secured loan. Unsecured loans are also commonly referred to as personal loans. Unsecured loans are typically used for smaller purchases such as furniture, home computers, cars etc.
The loans are set up to run for a relatively short term, typically one to five years, and you will find yourself paying a fixed interest rate and monthly repayment over the term of the loan. The fact that the payments are fixed is useful for budgeting but, as with any financial commitment, you need to be comfortable with affordability at outset and throughout the term of the loan.
One of the advantages of an unsecured loan is that you can often get hold of the money quickly. The lender will base their decision to lend on your credit history and a credit check will therefore be carried out. It is important to note that, if a lender requests a credit check it will leave a 'footprint' which will appear in any future credit checks.
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