There are two primary kinds of loans available on the market today – secured, and unsecured loans. Secured loans are loans in which some type of collateral is used to hold the loan; usually this is the borrower’s home, or perhaps a car in the case of hire purchase. If the borrower defaults on the loan, the lender has the option of taking possession of the collateral. Unsecured loans, on the other hand, do not require collateral to obtain.

Secured Loan Limits and Lenders

In most cases, lenders limit the amount of unsecured loans to between £15,000 and £20,000. Unsecured loans can be used for any reason, from taking the vacation of your dreams to having a medical procedure done, to starting a new business to consolidating debt. Although the lender may ask you what you plan on doing with the money on the loan application, really it is up to you how you use the money once you receive it.

Common lenders for unsecured loans are banks, credit unions, online loan companies and specialist lenders. Generally, lenders want you to have good to excellent credit before they will lend you money for an unsecured loan. You must also be able to demonstrate that you are gainfully employed and can afford the loan payments.

Online lenders often offer better terms than banks or credit unions. Additionally, the application process is often very fast and easy. Generally, you only need to fill out an online application and provide details such as your employment information, the amount of money you want to borrow and what you intend to do with the money. In some cases, you will need to fax a copy of your most recent pay slip to the lender. With online lenders, applications are often approved within 24-48 hours and the money is transferred into your bank account right away.

Despite the ease with which online loans can be arranged, due care should be taken to avoid “Pay Day” loan companies, whatever your circumstances. With typical APR’s in the region of 2,000-8,000% it is an extortionately expensive way of obtaining a loan for longer than a few days and despite the welcoming façade such companies present, they remain dangerous traps to the unwitting.

For individuals who are self employed, it may be necessary to use a specialist lender for an unsecured loan. Specialist lenders are often more willing to work with individuals who are considered high risk, such as individuals who do not have a long credit history or whose income is less stable due to self employment. If you are self employed, you may need to supply copies of your tax returns or business accounts for the past several years to prove your income.

Smart Use of Unsecured Loans

If you decide you want to take out an unsecured loan, do not borrow more than you can afford to repay, and consider other means of raising required capital such as saving. If you fail to meet the terms of the loan, it could be detrimental to your credit history. Even late payments will have a negative impact on your credit and influence your ability to get a mortgage or car loan in the future.

Unsecured loans are often for a term of between two to 10 years and are at a fixed rate of interest. If you find yourself having problems making payments, contact your lender immediately. Lenders are often more willing to work with you to renegotiate the loan if you communicate with them openly and honestly as soon as possible.

Before taking out an unsecured loan, shop around different lenders to find the best loan terms possible. Make sure you completely understand the terms of the loan before signing the loan documents and accepting any payments. A  final precautionary tale to shopping around is that that quoted APR’s are not necessarily the rate you will receive, and applying for a loan will impact your credit rating as it will record a search, even if you later choose not to go ahead with it.

This is Part 1 of the story of how this blog came to be.

It wasn’t all that long ago (as recent as December 2008 in fact) that I hit rock bottom in my life. Aged just 25, my wife left me, I had to give up the lovely house I’d called home for 3 years, and I didn’t have a penny to my name. I also didn’t have anywhere to live. The two things I did have was mountain of debt, and a job.

For 4 years I’d been in a relationship that viewed money a bit like water; We didn’t mind dripping taps, and didn’t think anything of leaving the tap running. While we were living at her parents house at the start of our relationship, and paying minimal rent, this wasn’t much of an issue. Virtually all of our combined income was disposable. We ate out regularly; bought whatever we liked; and didn’t think anything of living the ‘spend spend spend’ lifestyle. Afterall, it’s what everyone else was doing, right?

In 2005 we got married and decided to get a place of our own. This is where it all started to go terribly wrong. We moved 30 miles away from where I worked, increasing my commuting costs significantly and worse, she had to leave her job for us to do so. She found a new job soon enough, but it paid less than what she had been earning before. We were also unaccustomed to the sheer expense of living outside of a parental environment. They don’t teach frugality in school, or how to balance your finances, or how to manage debts and run a household. We bumbled along, making the best of it that we could.

By the time we had paid all the rent, utilities, insurance and commuting costs, we didn’t have a great deal left. She decreed she would take care of all the household and personal finances, and this suited me just fine: I hated thinking about money and wasn’t very good at it anyway. I was comfortable with someone ‘older and wiser’ taking care of the mundane parts of running our financial lives! But unbeknown to me at the time, she began taking out loans to cover our lifestyle. Credit cards topped up our day to day needs.

It seems absurd writing it down now. How stupid can you be?

For those who haven’t guessed, the end result of 4 years of that was total emotional and financial meltdown. Between us we had accumulated around £50,000 of unsecured debt, and it had taken its toll in terms of our relationship. Her request for divorce followed in November 2008 and she moved out 2 weeks later.  I wept that night. And for many, many nights that followed.

After arranging with my landlord to hand back the keys early, I sat taking stock of my life. At that moment on an icily cold winter morning, with no heating on, in an eerily empty, cold house that a few short weeks previous had been a happy place, I seriously contemplated suicide.

Continue to Part 2…