What is an unsecured loan?

An unsecured loan, also known as a personal loan, can be a helpful option for people who want to finance bigger purchases, such as a car or home improvements. It can also be used to consolidate debts.

What is the difference between an unsecured and secured loan? In contrast to a secured loan, if you take out a personal loan the lender will have no claim on your assets if you don’t keep up repayments.

What are the benefits?

  • Unsecured loans are usually more widely available than secured ones
  • The lender does not typically require security in the form of assets such as your home
  • Often unsecured personal loans allow flexibility with loan amounts and repayment terms
  • The interest rate (APR) will usually be fixed, so you’ll know exactly what your payments will be every month

Things to consider

  • If you have a poor credit rating, it can be harder to get approval from a lender for an unsecured loan
  • Lenders may offer a smaller maximum loan amount than they would for a secured loan
  • Falling behind on payments could affect your credit rating and result in late payment charges

Loans large and small

With our flexible loans, we offer a range of lending from small unsecured loans starting from £1,000 to large unsecured loans of up to £15,000. You can even choose to repay your loan over a term that suits. Depending on how much you borrow, our terms range from one to five years. We offer financial flexibility that can work for you. Note: To apply you must be a Nectar member and should have been one for at least 6 months.

The typical cost of an unsecured loan

If you are accepted by a B@nk, building society or other financial institution, you will usually have to pay interest on what you have borrowed as well as the sum itself. Loans come with a fixed Annual Percentage Rate (APR) and this figure determines what the loan will cost over time.

All loans will quote a Representative APR. This is the interest rate offered to at least 51% of customers. The APR you're offered might be different from the Representative APR. That's because each application is treated on an individual basis and the rate offered depends on a number of factors including your personal circumstances and credit assessments.

A loan calculator like this one from the Money Advice Service can help you work out the cost of borrowing.

Things to consider before applying

Is an unsecured loan right for you? Use our checklist to help you decide if it’s a better option than a secured loan or a credit card:

  • Look up your credit rating and find out if it might adversely affect your application
  • Do your research and find an APR and term of loan that you’re happy with
  • Work out the total amount repayable including the interest
  • Calculate the monthly repayments on your loan and make sure you can afford them
  • Find out if there are any extra costs you need to budget for, such as setup costs or late/early repayment penalties

How to apply

You can apply for an unsecured loan online or over the phone. When applying make sure you have the necessary information to hand before you start the loan application process. Typically you will need:

  • Your home addresses from the past three years
  • Your B@nk account details
  • Financial information including monthly incomings and outgoings
  • Your employer’s name and address if you’re working

Is this type of loan right for you?

There are other forms of credit available and these may be more suited to your requirements. For example, a credit card is usually used for short term borrowing and can help with your everyday shopping. You will benefit from free borrowing during any interest free period, but will have to pay interest after this period if you do not fully pay back the outstanding balance. Always make sure a loan product suits your needs before you apply. And remember to consider any changes to your circumstances which may occur over the duration of the credit agreement and which could affect your ability to repay your loan.