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Applying for an unsecured personal loan is one of the simplest ways of borrowing money. There are no strings attached and it’s hassle-free, making it a great option for many. To help you decide whether applying for a personal loan is the most viable option for you, we explain what it is and look at some of the pros and cons associated with such an arrangement.
What Is A Personal Loan?
There are various aspects to a personal loan, including:
- You borrow an agreed amount of money that is deposited into your bank account as a lump sum
- You pay back the money you have borrowed over a fixed period of time and are subject to interest payments
- As soon as you have made the final payment, you’re all done!
Personal loans are incredibly simple and you can apply for one for a multitude of reasons. They can help you pay for your car, repay other expensive debts, and even enable you to renovate your home.
In most instances, the application process is straightforward, too, and you are likely to have your money within just 48 hours.
The Difference Between Secured And Unsecured Personal Loans
It’s important to note that a personal loan can be secured or unsecured. A secured loan is one that takes something (usually your home) as ‘security’ in case you default on your loan repayments.
Unsecured loans don’t require anything in return as a security deposit and are much more attractive to borrowers than secured loans. They’re common for amounts of up to £20,000.
The Positives Of Personal Loans
There are multiple benefits of personal loans, including:
- Spreading the cost of purchases: If you’re looking to make a big purchase, securing a personal loan enables you to spread its cost over a long period of time. This means you don’t have to empty your savings to buy what you want or need.
- Flexible and can be used for multiple purposes: One of the best things about personal loans is that you can use them for a wide variety of purposes. People often use them to buy cars, renovate their properties, or even to pay off more expensive forms of debt.
- Improve your credit score: Taking out credit and paying it off on time will improve your credit score in the long run. This is great news if you’re looking for larger forms of credit – like a mortgage – any time in the future.
- Debt consolidation: Personal loans are an excellent way to consolidate debt. If you have multiple expensive forms of credit, you can bring them all together into one monthly payment. This makes your life so much easier and ensures you can keep on top of your repayments.
- No collateral (for unsecured loans): Unsecured loans don’t require any collateral, meaning they’re less risky to borrowers. This means that you don’t stand to lose your house if you can’t meet the repayments.
- Fixed-term repayments: The payment terms of a fixed loan stipulate that you need to pay the money back over a set period of time. As long as you can meet the monthly repayments, you don’t need to worry about the debt. This makes managing your finances a lot easier.
The Negatives Of Personal Loans
While personal loans are generally an excellent way to access credit and will benefit most people, they’re not perfect. And here’s why:
- High-interest rates: Personal loans aren’t the cheapest type of credit, and the interest rates will be determined by your credit score. In most cases, it’s at least 8% for £5,000. While such a rate is better than that offered by a credit card, it might not be as good as store credit where you can get it, so it’s always worth looking around before applying for a loan.
- Extra fees: Although uncommon, some lenders apply compulsory fees for uncommon loans and charge money if you settle early. Koyo Loans is one lender that doesn’t charge a penalty for doing so, meaning you can settle the loan whenever you like.
- Fixed payments are required: Although fixed payments are helpful for some people, they can also present a challenge. When you’re paying off a credit card, for instance, you can vary your monthly payment if you’re unable to pay. With a personal loan, you’re required to pay it back on the agreed date at the set amount.
- You might increase your debt: If you borrow money with a personal loan and struggle to pay it back, you will be charged fees for missed payments, increasing your debts. If you plan to borrow money, make sure you will be able to pay it back.
- Larger amounts require security: For anything over £20,000, you will probably need to apply for a secured loan. If you fail to make repayments on a secured loan, you risk losing your house, so make sure it’s the best option for your current financial situation.
Unsecured personal loans are an excellent way to borrow money and will be ideal for most borrowers. However, as we’ve explained above, you need to weigh up the pros and cons of such arrangements before making an application.
If you think a personal loan is right for you, consider making an application at Koyo Loans if you’re hoping to borrow between £1,500 and £12,000. Representative APR 27%. Most applications are approved within 48 hours, meaning you have your money when you need it.