A Guide to Unsecured Personal Loans

Learn everything you need to know about unsecured personal loans.

Updated: May 19, 2024
Matt Crabtree

Written By

Matt Crabtree

CompareBanks is reader-supported. When you click through some links on our site, we may earn an affiliate commission. Learn more

An Unsecured loan is a type of loan that’s determined by your credit history. The most common type of unsecured loan is a personal loan.

You can use a personal loan to cover the cost of a new car, improve your home, or if you simply need extra cash.

If you're looking for a somewhat easy loan and have a good credit report, consider looking at an unsecured personal loan.

One of the most appealing aspects of unsecured loans is that the application process is typically straightforward. You usually find out if your application was successful on the same day of your application. 

Unsecured loans are usually quick to obtain, and depending on the lender, you could have the money in your bank account within a few working days.

Taking out a loan can be complex; there are criteria to meet, interest rates, and monthly repayments you must budget. It’s safe to say that taking out a loan is a big financial commitment that needs plenty of preparation. 

In this article, you'll learn about unsecured loans, the pros and cons, and what to look for when applying. 

What Is an Unsecured Personal Loan?

Unlike a secured loan, you don't need to put any assets forward as collateral with an unsecured loan. An unsecured loan refers to any financial obligation not protected by a guarantor or collateral assets. 

When you apply for an unsecured loan, your eligibility, annual percentage rate, any other interest rate, and credit limit are determined by your financial history. So, you're off to a good start if you’ve got a good credit file with no court county judgements and bankruptcies.

Before applying for a loan, you should know that there are different types of unsecured loans.

There are different types of unsecured loans, such as:

  • Personal loans: A straightforward loan you can apply to borrow money from a lender.  At the beginning of your contract, you and the lender will decide on the set amount of money you borrow. You'll also agree on have set monthly repayments and the fixed term of the loan. 
  • Student loans: The government usually provides a student loan. Student loans help students pay University fees and support them during their academic studies. Two loans are part of student loans: the Tuition Fee Loan and Maintenance Loan.
  • Credit cards: A credit card isn't a loan but works similarly. Your credit history determines your credit limit and APR rates. The difference between a credit card and a personal loan is that they are ongoing, so you can use them again when you pay back the balance.

The most common unsecured loans are personal loans, and if you require quick finance, this is the most straightforward option. Personal loans help spread the cost of big purchases. Whatever your reason, an unsecured loan can help you out.

Who Can Take Out an Unsecured Loan?

Most people can take out a loan depending on whether they meet the lender's criteria. Although each lender has their own criteria, there are some standard requirements that all lenders ask for.

You'll have a better chance of a successful loan application if you:

  • Employed: If you're in paid employment, you're more likely to be accepted for a loan, as it demonstrates you have an active income and can afford your repayments. Each lender will require you to earn above a certain amount, starting from £7,000. Some lenders won't let you borrow money if you're self-employed. Other lenders may lend you credit if you're self-employed. Make sure you check their criteria.
  • Have a good credit record: The better your credit score, the more likely your application will be successful. You'll be offered a better interest rate and a higher loan amount with a good or excellent credit score than you would with a poor credit rating.
  • Aged between 18 and 70: All lenders won't lend money to anyone under 18, and some lenders won't lend to anyone under 21. To ensure you can repay the loan, some lenders require that you be under 70 by the time the loan ends.
  • UK resident: All UK loan providers require that applicants are UK residents and have proof that they've been a UK resident for at least three years.

Many lenders consider personal circumstances when you apply, so you may still be accepted even if you don't check all of the above factors. Check a lender's website for their criteria before applying for a loan.

Pros and Cons of Unsecured Loans

Like any financial situation, there are pros and cons.

To help you decide if an unsecured loan is the right option, we've compiled a list of all the pros and cons of taking out a personal loan.


✔️ No risk to personal property: Unlike secured loans, you don't need to put forward any of your assets to get an unsecured loan.

✔️ Easy application process: You can usually apply for a personal loan online, and it's a simple process. Completing a loan application takes five to ten minutes if you've all the required documentation. You'll get your application decision almost instantly from most loan lenders.

✔️ Determined by your credit history: You don't need a guarantor to vouch for you with a personal loan. Instead, your credit record determines your eligibility and what size loan and interest rate you'll get. So, if you've a good credit history, you're more likely to be accepted for a loan than someone with a bad credit score.

✔️ Quick access to funds: If your application is successful, you could receive the money in your bank account in at least two hours or within two working days.

✔️ High credit limit: Loans typically offer higher loan amounts than a credit card. There are loans available from £1,000 up to £40,0000. Each loan provider will have its own criteria for large and small loans.

✔️ Fixed monthly repayments: Your monthly payment will be the same every month, so there are no surprises or hidden fees. Your loan repayment will be the same monthly unless you pay extra.

✔️ Competitive rates: Personal loans offer more competitive rates than credit cards and other types of finance. The fixed-rate nature of a personal loan makes this loan more desirable, as you'll usually know how much your payments are before you apply for a loan.

✔️ Flexibility with loan term: You can choose how long you want your unsecured loan payments to last; usually, with a loan, you can pay it over several years.

✔️ Debt consolidation: Getting a debt consolidation loan can help you manage your debts and put them all into one payment instead of multiple.


❌️ Low credit limit if you've got a poor credit history: If you've got a bad credit score, you may be able to loan a significant amount, and your annual percentage rate may be higher than someone with a good credit score.

❌️ Early repayment fees: Some loan providers charge a fee for early repayment. It's usually up to two months of interest. Depending on how long is left in your loan term, it may be cheaper not to pay it off early.

❌️ Potential damage to your credit file: You could negatively impact your credit rating if you can't afford your monthly payment or keep missing your loan repayments. Missed payments show on your credit file, which could harm your chances of applying for future credit.

What You Should Look Out for When You Apply for a Loan

You need to know what to look out for to find the best personal loan rates or the cheapest loan on the market. To help your loan search, we've compiled a list of loan factors to look out for and compare.

What factors you should consider when comparing loans:

  • Borrowing term: With a personal loan, you can choose your payment term, and you can choose to spread your monthly payments over one to seven years. Some lenders will offer you a lower APR for taking out a loan for more time.
  • Borrowing amount: If you're looking for small or more significant loans, you're in luck. Personal loans usually range from £1,000 up to £40,000. Some loan providers will lend you more money if you have a membership. 
  • Early repayments: Some loan providers will charge you for making early repayments. If you can pay off your loan early, you're better off looking for a loan provider that doesn't have an early repayment fee.
  • Interest rates: Regardless of your loan, you will be paying interest on top of the borrowed money. So, look for loans with low APR to ensure you pay the lowest interest possible.
  • Credit history: Some loans state that you need a specific credit rating to be eligible. Look at each lender's criteria to save time applying for a loan you could be rejected.
  • Monthly instalments: The most important factor in borrowing money is ensuring you can repay the lender. Before you take out the loan, see if you fit monthly repayments into your budget. If you miss payments, you will accrue more interest, and you'll be paying much more than the actual rate of the loan. If you're worried about missing payments, you can set up a direct debit to send the money to the lender each month.

Considering the above factors can make choosing the right loan much more manageable. Knowing if you can borrow money from a lender before filling out an application is a great way to avoid unnecessary rejections and marks on your credit file. Always use an eligibility checker if the lender has one on their website.

Alternatives to an Unsecured Personal Loan

If you're unsure if an unsecured loan is the right option for you, don't worry.

There are other lines of credit you can apply for if you still need extra cash. We've compiled a list of alternative finance options to a personal loan.

Alternatives to personal loans:

  • Secured loans: If you're worried about your credit history letting you down, you can apply for a secured loan. All you need to do is put forward collateral to borrow money. You can keep your assets if you make the monthly payments on time. A secured loan puts much more at risk, but your assets should be safe if you know you can repay what you borrow.
  • Credit cards are ideal to build credit or keep them for emergencies. There are different credit card types for various credit ratings. If you think your loan application will be unsuccessful, consider looking at a credit card for bad credit.
  • Home improvement loans: A home improvement loan is another type of personal loan, but it's specifically for helping you make your house into a home.
  • Car finance: If you're looking for car finance, there are car loans you can apply for to help you afford a new card. A car loan is a personal loan geared towards helping you afford a new or used car.

Leading Unsecured Personal Loans: The Verdict

So, now that you know everything you need about unsecured personal loans, you can start looking and applying for a loan. Remember: the better your credit rating, the more likely your application will succeed, and you'll get better interest rates.

Related Guides:


Are Unsecured Loans Harder to Get?

How Much Money Can I Borrow When Applying for a Personal Loan?

What is the Minimum Credit Rating for an Unsecured Loan?

Related Articles

The Average Business Loan Interest Rates for 2024
Business loans are a powerful tool for helping companies of all sizes reach their...
Company Guide: Will Bounce Back Loans Be Written Off?
It goes without saying that keeping your business financially stable throughout...
Do Bad Credit Bridging Loans Exist?
Learn what financing options you have available to you if you're someone with less...
Best Bridging Loan Companies UK
The process of selling a house isn't usually quick, and if you've already got your...