All You Need to Know about Unsecured Loans

Most of us will have heard the terms ‘secured loan’ and ‘unsecured loan’ bandied about but do you really know the differences and what risks you’re taking on with each?

A secured loan is typically used to borrow a large (more than £10K) sum or money and the lender will ‘secure’ this against an asset you own in the instance you can’t pay the loan back – that asset will usually be your home.

An unsecured loan on the other hand doesn’t require any collateral and can be handy for those of us not yet in the property game (or who are looking to get in!).

The essence of an unsecured loan is: you borrow money from a lender (this could be a bank, a credit union or another private lender) and the two parties agree to payment terms until you repay the full amount. Interest rates for these types of loans tend to be higher than with secured loans though and you will wind up paying back a far greater sum than you borrowed, or if you borrowed from a secured lender.

If you have decided that an unsecured loan is for you (or if you have no assets and this is your only option), it’s best to weigh up the positives and negatives before you dive in:


  • No asset required for lending (i.e. you don’t need a house to re-mortgage!)
  • Which also means they can’t take any assets away if you default on your payments!
  • You can borrow a smaller sum of money to get you through a rough patch, or to get that car upgrade for a growing family
  • There is a greater choice for lender options
  • It’s a much simpler application and approval process meaning you can get your money faster


  • You’re likely looking at a smaller sum of money so your options are limited if you’re looking for bigger purchases
  • Interest rates are significantly higher with unsecured loans due to the risk to the lender
  • If you can’t pay your loan back or you miss a payment, you’ll likely incur further charges and the lender is able to take you to court in order to get their money back

Your first step to getting an unsecured loan is to shop around with different companies. Go to your bank to see what the options are or check out your local credit unions and private lenders. Comparison websites such as or are a great place to start. These sites will give you an idea of the different repayment schemes, interest rates and penalties as well as the most trusted and established providers.

As with anything involving money though, make sure you’re in a position to make the repayments before you agree to any terms and conditions!

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