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Unsecured loans explained

This unsecured loan buyers guide outlines what you can use a cheap loan for, comparing unsecured loans, and how unsecured loans differ.

With an unsecured personal loan, you borrow money without putting up anything to 'secure' the loan – so your home, for instance, is not at risk if you can't repay the money for some reason.

There are a number of different types of unsecured loan, and different reasons for using an unsecured loan:

What you can use an unsecured loan for

Unsecured loans are a great way to spread the cost of paying for:

Cars – Personal loans are usually cheaper than car dealers' loans. You are effectively paying cash, so you can haggle more to get a better deal!
Holiday – A personal loan is a great way to pay for things you know the exact cost of – a once-in-a-lifetime holiday, for instance.
Home improvements - Builders may not accept credit cards and you may need more than your card's credit limit to pay to add value to your property.
Wedding - Having a fixed sum in your bank account will help you stick to a budget for your big day (and other costs, like the honeymoon after).

You can also use an unsecured loan to consolidate debt – rearrange and simplify your finances, so you know exactly how much you're paying at a set time each month.

Comparing unsecured loans

Unsecured loan rates can be as low as 7% or 8% if you have a good credit profile.

If you have a poor credit profile (you've paid some credit card bills late, for instance), you're less likely to be accepted for a loan and rates will be higher.

You may have to get a secured loan if you have had problems with credit in the past.

Why you should use LowerMyBills

Advertised loan interest rates are often typical ones – this is the rate that two thirds of successful applicants receive.

The rate you will pay (and whether you will be accepted) depends on your personal credit history.

If your credit history is poor, multiple loan applications will harm your credit rating. Use our service to avoid being told about loans from lenders who are unlikely to accept you.

How unsecured loans differ

There are a number of different types of unsecured loan. You can compare unsecured loans for any amount from £500 to £25,000 and any period from 1 year to 7 years. Here's how lenders' options differ:

Interest rates - The interest rate you're charged is known as the APR, and is usually fixed for the time of the loan – so your interest won't go up or down. Different lenders charge different APRs.
How you apply - Lenders may offer lower APRs on bigger or longer loans. Some cheap loans are available only if you apply online.
Early repayment - Some loans may have slightly higher APRs but no early-repayment charges. If you think you might want to repay early, ask the lender its policy.
Other benefits - Some loans may let you make under- or over-payments, or even take payment breaks (months where you don't have to pay anything) without penalty.

To see what's on offer, compare loans now through LowerMyBills.

Unsecured loans brought to you by LowerMyBills from Experian

The LowerMyBills guide to unsecured loans was created to show you the types of unsecured loan, what to use a cheap loan for, comparing unsecured loans, and how unsecured loans differ, so that you have the information you need when looking for an unsecured loan.