Unsecured personal loans allow you to borrow funds without using an asset, such as a car, as security. This type of loan gives you more flexibility in terms how you use your loan amount. You can use your funds to make a large purchase, consolidate debt, or anything else you like. Find out if this type of loan is right for you by reading this guide.
How do unsecured personal loans work?
Unsecured loans involve you receiving a certain amount of funds that you can use for any worthwhile purpose. You then pay the funds back with fees and interest. While you can generally use the funds how you choose, when you apply for the loan you may be asked to list why you are applying for it, and this will form part of the lender’s decision. When completing your application you will also need to list how much you want to borrow and how long for.
Unsecured personal loans offer amounts varying between N10,000 and N2,000,000 and loan terms varying between one and seven years. You’ll find that unsecured loans come with higher rates than secured loans because the lender is taking on more of a risk. These loans can also come with establishment fees, monthly fees and annual fees, so be sure to check these before you apply. Unsecured loans can be fixed or variable and repayment restrictions differ between lenders – you may be able to make additional repayments and repay your loan early without penalty depending on your loan.
What benefits come with an unsecured personal loan?
There are a number of benefits offered by unsecured personal loans, but here are the three top ones:
- Flexibility. You can use the loan amount however you need to. For example, you can use some of the funds to purchase furniture and the rest to consolidate debt. How you use it is up to you.
- Options. This is a very standard type of loan so you’ll find most banks and lender offer their own version of an unsecured personal loan. This gives you a wide range of options to compare to find the right one for you. You can choose which interest rate type you want, which loan terms work for you and which features you want to take advantage of.
- Rates. While interest rates are generally higher with unsecured personal loans compared to secured personal loans, you can still find loans that offer low rates. Peer-to-peer lenders, for example, offer rates on unsecured personal loans that are on par with most secured loans.
How do you compare unsecured personal loans?
Comparing your unsecured personal loan options is an important part of finding the right loan for you. Here are some things to keep in mind when doing so:
- Interest rate. Check whether the interest rate is fixed or variable and whether it’s competitive.
- Minimum and maximum loan amounts. All lenders will set a minimum that you can borrow and the majority will have a maximum – these usually vary between N10,000 and N2,000,000 . While you may not be eligible for either it’s important to check that the amount you need falls between the two.
- Fees and charges. You can be charged upfront and ongoing fees with unsecured loans, so check what these are before you apply. You can look at the comparison rate to see an overall cost of the loan which includes these fees.
- Additional features. Your loan may come with additional features that you might find convenient, such as online account management, a redraw facility to access additional repayments or discounts on additional products offered by the lender.
Advantages of Unsecured Personal Loans
- No asset needed for security. When getting an unsecured loan, there’s no need to supply an asset as security. If you’re purchasing an asset with your funds you won’t have to risk it, and you also won’t need to risk an asset you already own.
- Flexible loan purpose. You can use the funds however you like. Once you’re approved the funds will be transferred to you and you can use them to consolidate debt, purchase what you need to or to invest.
- Easy application process. Applying for one of these loans is usually quite easy. The application can typically take place online if you can provide the appropriate documentation required. After the application, you can usually get a response in 60 seconds.
Disadvantages of Unsecured Personal Loans
- Can have higher fees. As there is no security with unsecured personal loans, there may be higher fees enforced by the lender to compensate for the lack of security provided by you. This may come in the form of an establishment fee or monthly fees.
- Penalties for missed payments. Again, as there is no security asset on an unsecured loan, the lender can charge you high fees for late payments or even take legal action against you and take you to court if you default on the loan.
- Higher interest rates due to no collateral being offered. As there is a higher risk involved from the lender, the interest rates are generally higher on unsecured loans. This is to cover the fact that there is no collateral involved with the loan.
How you can apply for an unsecured personal loan
If you think an unsecured personal loan is for you, all you need to do is use the StartCredits loan search engine to compare your unsecured loan options. After browsing through the table and finding a suitable loan, start the application process. Typically, to get an unsecured loan you’ll need to meet a range of criteria set by the lenders.
- You must be at least 18 years old and usually below 55 years old.
- You must also have a good credit rating and be able to provide proof that you can pay off the loan.
- You may be asked to provide copies of your payslips, bank account statements and other credit contracts.