Unsecured Loans

Personal unsecured loans may be offered by banks, credit unions or other financial institutions. You may be offered a loan in return for you agreeing to make regular repayments - usually by automatic payment. However, you will need to apply for a secured loan for large amounts. Personal unsecured loans are available are repayable over a certain period of time, usually between 6 months and 10 years, with the lender preferring as long a term as possible.

Applying for an Unsecured Loan

Personal unsecured loans are offered to people with good credit records. The lenders will rely on their judgement of your credit worthiness to get their money back, so they will carry out detailed checks with credit agencies, on your credit card record and on your current bank account. If you have debt problems, you may not get a loan.

Interest

The interest you will be charged will be either fixed or variable on the amount borrowed. Usually it is fixed, and so will remain the same throughout the term of the loan. However, in the case of long-term loans, it may be variable, and so you should check this before you sign. Although you will probably be offered a lower rate of interest if you agree to a longer loan period, this will almost always prove more expensive in the long run than a short-term loan.

The repayments are often 'front end loaded' - meaning that during the early years of the loan you will be paying large amounts of interest and very little of the actual capital. This will make a difference if you decide to pay the loan off early, as you may find that after making payments for a year, you will have only paid off a tiny amount of the loan itself.

The interest charge is expressed as an APR (annual percentage rate), and will vary depending upon the amount of the loan, the term of the loan, and sometimes your credit rating.

Insurance

Most lenders will offer Payment Protection Insurance - an insurance that will cover your monthly loan repayments in the case of unemployment, accident, sickness or death. There are often different levels of insurance, so check the small print to ensure the cover provided is suitable for your needs. This insurance can end up being very expensive: on a five-year $20,000 loan, the repayment protection policy is likely to cost in the region of $80 a month - that's nearly $5,000 over the term of the loan!