Beginners’ Guide to Unsecured Loans

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Unsecured loans are not secured against something of value, such as a property, so they’re available to tenants as well as homeowners. You may find that with an unsecured loan, you won’t be able to borrow as much as you might if you took out a secured loan. You may also find that it charges more interest than a secured loan would. This is because unsecured loans are, from a lender’s perspective, seen to be riskier than secured loans.

Will my credit rating affect my chances of getting an unsecured loan?

Before you can be accepted for any loan, the lender will check your credit rating. They will check to see how well you have repaid any loans in the past, and also check how you have managed your finances in general - for example, have you paid all your utility bills on time?

If the lender finds that you have a poor credit rating, they may turn you down. Alternatively, they may still offer you a loan, but at a higher interest rate.

If you have a good credit rating, and the lender can see that you are likely to repay the money as agreed, then there is a higher chance that they will give you a loan.

You will have a better credit rating if you make payments reliably (on your mortgage, for example, or a mobile phone contract).

Unsecured loans and County Court Judgments (CCJs)

If you fail to repay the unsecured loan as agreed with the lender, they may decide to take you to court if they believe this is the best way to get their money back. This will probably be seen as a last resort, and should only happen if you and the lender fail to reach an alternative agreement. If the court believes that it is the best way for you to pay the money back, then they will issue you with a County Court Judgment (CCJ).

If you are a homeowner, and you are issued with a CCJ, the lender might subsequently be able to ask the court to issue a Charging Order. This secures the remainder of the loan against your home.

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