An unsecured loan is a loan that does not use an asset, such as your house, as security. Cheap unsecured loans are widely available from UK financial institutions for amounts up to £25,000 for various purposes, such as a wedding or holiday. With unsecured loans there is no risk of your home or other assets being reclaimed by the lender should you default on repayments; however they are generally offered at higher APRs over shorter repayment periods than secured loans.
Comparing like-for-like personal loans between lenders is difficult. As you are offering no assets as security when applying for an unsecured loan, your credit history is assessed by prospective lenders as an indicator of the financial risk you present as an unsecured loan candidate. Lenders advertise loans with respect to their ‘typical APR’, which is the interest rate they offer at least 66% of their customers. In order to maintain this typical APR, lenders will decline unsecured loan applications from candidates with low credit ratings - in fact, over 85% of unsecured loan applications fail (Totally Money data March 06-07 Selected Suppliers) - as there is greater financial risk to the lender with unsecured loans. If your credit score is low, you should consider applying for a secured loan .
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