Types of Unsecured Personal Loans

Even consumers who practice careful spending habits can sometimes find themselves in financial trouble. Unexpected expenses such as car repair bills or medical costs can strain your budget and leave you wondering how you will make ends meet. Fortunately, there are several types of a secured personal loans in the UK that can help you through difficult financial times. It is important to consider these loans carefully to ensure that you are choosing the right type of loan for you.

Payday Loans

A payday loan is a short term loan that can help you through a financial emergency. The process of qualifying for this type of loan is relatively simple and typically requires little documentation. For this reason, you might be able to obtain approval or a payday loan and receive the funds you need in as few as one or two days. In some cases, you can even obtain a payday loan without a credit check or income verification.

Before opting for a payday loan, you should consider the drawbacks of this option. In most cases, you will have to repay the loan amount, plus interest, within one or two weeks after you receive the funds. Although this might be appropriate for a financial emergency, a payday loan might not help you if you anticipate that your financial needs will last for a longer amount of time. Also, compared to other types of unsecured personal loans, payday loans typically come with high interest rates. You might have to pay 25% interest or higher in addition to the principle amount for the privilege of borrowing money for just a week or two.

Personal Bank Loans

A personal bank loan is issued by a bank or other financial institution instead of by a payday lender. This type of loan is generally designed for longer-term financial needs – depending on your circumstances, you might be able to borrow the funds for five years or longer. This might be an appropriate option if you want to consolidate existing debts or anticipate that your recurring extra expenses will last longer than a few weeks.

Banks and financial institutions require substantially more documentation than payday lenders when evaluating applicants. You will likely need to provide verification of your income and expenses, as well as documentation of your personal assets and other debts you owe. You will also have to fill out a lengthy application and may have to meet with a personal lender in order to receive approval for your loan.

Compared to payday loans, interest rates for personal bank loans are typically low. This option can help you obtain the long-term funds you need without costing you a small fortune in interest charges. Of course, this type of unsecured loan typically requires a thorough review of your credit history. The interest rate you obtain a for a personal bank loan can vary significantly depending on the length of your credit history and whether you have made your other account payments on time.

Unsecured Credit Cards

If you don’t want to deal with the extensive approval requirements of a personal bank loan, but don’t want to pay the high interest charges of a payday loan, an unsecured credit card might be the right option for you. Depending on your credit score, you might be able to obtain a credit card with an APR of as low as 12.99%. If you have a flawless credit history and a high credit score, you might even be able to obtain a credit card with a 0% introductory rate. This allows you to borrow the money you need without paying interest charges for nine months to a year.

Regardless of which option you choose, it is essential that you assess your ability to repay the unsecured loan. Missed payments can cause you to incur hefty late fees that can make your loan even more difficult to repay. If you fall behind by three or more payments, the lender can consider your loan in default and may demand immediate repayment in full. In addition to the financial implications of missing payments, you will also have to deal with collections activity, such as phone calls and letters, initiated by your lender. For this reason, you should review your finances carefully before agreeing to any type of loan.