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Unsecured Loans – Little Loans Guide

5.4m Brits with less than perfect credit histories took out unsecured loans in the year to June 2018, a jump of 800,000 on the previous year.

What is an unsecured loan?

An unsecured loan is a type of loan where no form of security or collateral is required or taken.

On the other hand, when you offer security on a loan, your lender is within their legal rights to take possession of that security if you default on your loan.

Can I get an unsecured loan with bad credit?

There are over 80 finance companies in the UK which specialise in lending to people whose credit history is not perfect.

If you have a bad credit rating, you're more likely to be accepted for a loan by one of these types of finance . However please be aware that all applications are subject to status and that acceptance cannot be guaranteed.

Do I have to be a homeowner to get an unsecured loan?

Homeowners, tenants, and borrowers living with parents can successfully apply for an unsecured loan (subject to status).

How do I qualify for an unsecured personal loan?

What affects your eligibility for an unsecured loan?

The major factors are:

  • your disposable income (your monthly take home pay minus your monthly expenses) and whether there's enough left at the end of month to more than meet your scheduled repayments
  • your recent address history
  • having a UK bank account with a debit card attached to that account, and
  • being able to provide a current email address and mobile phone number

Each lender has their own criteria in determining whether they'll approve a personal loan or not for you.

If you do make a full application for finance, you’ll receive one of the following responses from a lender:

  • an offer and a quote for the full amount you've requested,
  • an offer and a quote for an amount less than you're asking for, or
  • your application will be declined.

Unfortunately, very few finance companies actually share their exact lending criteria with prospective borrowers on their website. This makes it difficult for applicants to know whether a lender they're thinking about applying to is going to be likely to make them an offer or not.

Your credit rating

Did you know that you actually have four different credit scores? There are a number of different credit reference agencies in the UK and each of them has their own particular method of calculating a borrower's "credit rating".

So, what influences how high or low a person's credit rating is, whichever the agency?

  • Voters' roll - are you on the electoral register? This is more important than you might think.
  • Financial management - are you up to date with all your payments on credit card accounts, on your insurance, other debts, with energy companies, and other financial products (like travel loans, car loans, mortgages, and so on).
  • Living near your limit? The further away your balances are away from the limits on your credit card and overdraft balances, the better.
  • How often are you applying for new borrowing? When making lending decisions, the number of times you've recently applied for new credit cards and loans is important. The more applications you make in a short space of time, it might make a lender think you're struggling to manage your finances. This is a red flag you should try to avoid.
  • Any lending defaults? If you took out borrowing in the past and you couldn't pay it back, this will stay on your credit report for 6 years including any CCJs you incurred as a result.

Using all the information on your report, a credit reference agency works out your "credit score".

If your credit score is higher, more lenders will be likely to approve a borrowing request from you and you're more likely to be offered a lender's cheapest rates.

Borrowers with lower credit scores will generally have a narrower and more limited range of lending providers happy to work with them.

Affordability assessment

An affordability assessment is included on your loan application form. It's the part where you answer lenders' questions on your current financial and employment situation.

Lenders decide whether a loan is affordable for you by comparing:

  • how much each loan repayment will cost you, against
  • how much money you have left at the end of every month after paying all your necessary bills.

Are unsecured loans safe?

All unsecured loan providers in the UK must be authorised and regulated by the Financial Conduct Authority (FCA).

5 things to look for with your unsecured loan

There are four important factors you should consider before agreeing to any loan you've been offered:

  • interest rate - this determines the overall cost of your loan,
  • the term - how long you take to repay the loan affects the size of your monthly repayments,
  • other fees - your lender may charge you if you miss a repayment or if you want to settle a loan in full ahead of the schedule you've agreed, and
  • the terms and conditions - the binding legal document you sign when you accept an offer from a lender.

What's the interest rate?

When you borrow money, you're charged interest on that debt. The interest is how lenders make their money.

When a lender makes you an offer, the interest rate they charge is based on a number of different factors, particularly:

  • what they find out about you when they perform a credit check
  • your current financial and personal circumstances (the information you share on the application form)

The more risk they think that there is that you might not be able to pay your loan back, the higher the interest rate they'll typically quote you.

If you see the term "representative APR" on a lender's website, this refers to the annual percentage rate (APR) that 51% or more of their customers are paying to borrow money.

Fixed versus variable interest rates

Sometimes, the Bank of England may change what's called its "base rate". The base rate is one of the factors which lenders consider when calculating how much to charge their borrowers in interest.

Although the vast majority of unsecured personal loans are offered on a "fixed" interest basis, some lenders may still offer you a "variable" interest rate loan instead.

On loans with variable interest rates (for example, mortgages), your interest rate will likely follow the direction of the base rate.

This means that, if the base rate goes up, your interest rate may also go up making your monthly repayments more expensive. Likewise, if they go down, your repayments may get cheaper. When the base rate does move, you will often see it reported in the news.

If you are offered a loan with a variable rate, please make sure that you can afford to make the repayments if the base rate does go up at some point in the future.

What is the term of the loan?

The "term" is the period of time you take to pay a loan back - you agree this with your lender.

The longer you take to repay your loan, then:

  • your monthly repayments will likely be lower but
  • the overall amount of interest you pay on your loan over the term will likely be higher - in other words, loans with a longer term will cost you more overall.

Are there any other fees?

You may also be charged the following fees by a lender:

  • an account management fee - if you miss a payment, you may be charged for doing so
  • an early repayment charge - if you want to settle your loan in full early, your lender may make a charge for this.

Terms and conditions

Before you accept any offer of a loan, you will be asked to read, understand, and agree to the lender's terms and conditions.

If you do decide to proceed, a new legally binding lending agreement will come into force between you and the finance company which will be governed by those terms and conditions.

What details will I need to provide for my application?

Before you apply for a loan, please make sure you have the following information to hand:

  • how much you want to borrow and over how long
  • your reason for the loan (home improvements, short term cash etc..)
  • your address history for the last three years
  • employment details (including income, employer name, status, and line of business)
  • your monthly outgoings (current loan repayments, utility bills, transport costs, food costs, and other expenses)
  • bank account and debit card details

Where can I get an unsecured loan?

Many borrowers prefer to make their application for an unsecured loan on the Internet. You can apply online to lenders direct or via a broker like Little Loans.

If you approach a direct lender, you have one form to fill in. You will only be considered for that lender's products and they will run a hard credit search on you when you submit your completed application and have given them permission to do so.

If you choose a broker, they approach the lenders on their panel most likely to approve your application based on the details you provide them with on their application form. Each lender selected and approached will run a soft credit search on you.

You'll then be redirected to the website of the lender who gives the first positive response to the preliminary approach made by your broker (subject to status). When you're at the lender's site, you'll need to complete their application form and give them permission to run a hard credit search on you.

Within a few seconds, you'll either be shown a quote for a loan the lender is happy to agree to or your application will be declined.

Broker versus lender comparison

If you approach multiple direct lenders within a short space of time, each application you make will result in a hard credit search being carried out on you. Too many hard credit searches actually reduce the likelihood of you being approved.

With a broker, even though multiple lenders may be approached on your behalf, only one hard credit search will be carried out. And that's only if you complete and submit the selected lender's application form when you're at their website.

The soft credit searches run by the other lenders approached do not affect your credit score in any way.

How soon do I get the money?

You'll first be shown a quote for your loan and the lender's terms and conditions if you're approved for finance.

Before you accept any offer made to you, please make sure you read the terms and conditions and that you're happy with them. That's because, if you do agree to them, a new lending agreement will come into force to which you'll be legally bound.

Depending on the lender, the money may arrive in your bank account within minutes* of agreeing to the terms and conditions and signing the online documentation.

How to compare loans

It's difficult to make an accurate comparison on loans unsecured on any home or asset you have. If a lender does provide you with a quote, please don't accept it if you're not entirely sure that you can comfortably meet all of the repayments in full and on time.

Are you worried about your current level of borrowing?

There are six national charities whose staff offer free advice and guidance on managing debt. Please click on one of the following links - StepChange, PayPlan, National Debtline, the Debt Advice Foundation, the Money Advice Service, and Citizens Advice. Support is available via phone or email.

Apply for an unsecured loan with the broker Little Loans

With Little Loans, you can apply for a loan of £100 to £1,000 over a term of either three, six, or twelve months. For loans between £1,001 and £5,000, you can select a term of between three months and thirty-six months.

Use our simple online application form and we search through our panel of lenders to find the companies most likely to approve your request for

Please only apply for an unsecured personal loan if you are comfortable with the likely monthly repayments and that making those repayments won't cause you to suffer any financial hardship.

Little Loans is authorised and regulated by the Financial Conduct Authority.

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Representative Example: Amount of credit: £1200 for 18 months at £90.46 per month. Total amount repayable of £1628.28. Interest: £428.28. Interest rate: 49.9% pa (variable). 49.9% APR Representative. We’re a fully regulated and authorised credit broker and not a lender