Borrowing options that do not require property security 

There are various types of loans available from direct lenders and banks, but they are all divided into two categories: secured and unsecured. Secured loans are those that are pledged against an asset such as a house or car, while  do not require any collateral. Since the risk is high in those loans, lenders will charge high interest rates.  

When there is no security pledged against a loan, there is no risk of losing your personal assets in case of default. However, it does not insinuate that you do not have to face the consequences. You will end up with accrued interest on the unpaid balance and late payment charges. This will keep accumulating the size of the debt.  

Borrowing options that do not require collateral 

The best thing about loans without collateral is that there is no risk of losing an asset.  

Unsecured personal loans 

Unsecured personal loans in the UK are available from direct lenders and banks. However, banks provide these loans when your credit score is up to scratch. Since direct lenders are more flexible than banks, they do not mind accepting applications from subpar borrowers.  

• As these loans are not subject to collateral, they will charge higher interest rates than secured loans.  

• The approval of these loans largely depends on your credit score and income. If your repayment potential is not good, you will struggle to receive approval despite a good credit rating. 

• These loans range between £5,000 and £25,000. 

• There is no guarantee that all lenders will be able to lend up to £25,000 without collateral. The minimum and maximum loan limit vary by lender. 

• You will pay down the debt in fixed monthly instalments over an extended duration.  

• The APR for these loans varies between 9% and 24%, depending on your credit profile.  

Tip: Unsecured personal loans are risky. Use them only when you need money urgently and are certain about your repayment capacity.  

Guarantor loans 

Guarantor loans are also a type of personal loan, but they are aimed at subprime borrowers only. Those whose credit scores are subpar or credit reports are thin struggle to get approval from a lender, because they are perceived as extremely risky borrowers.  

Since the default risk is too high and there is no collateral, a lender would like you to arrange a guarantor with a good credit history to minimise the default risk. In case you refuse to discharge your debt, they will call on the guarantor to clear the dues.  

Guarantor loans will allow you to borrow a large sum of money despite a poor credit rating. They range between £1,000 and £10,000. Bear in mind that non-payments will ruin your relationship with the guarantor, as it will pull their credit points as well, regardless of whether or not they clear dues.  

Tip: While there are various lenders providing these loans, arranging a guarantor is not a cinch, because people are well aware of the consequences.  

Credit union loans 

Loans from credit unions are also unsecured loans. You will have to be a member of a local credit union in order to borrow money from it. The loan amount ranges between £500 and £5,000. Interest rates will be high for poor credit borrowers. Yet, they offer loans at more competitive rates than lenders. Unlike lenders, credit unions do not lend large amounts of money. 

Tip: Credit union loans are generally suitable for funding small unexpected expenses. If you need money up to £1,000, you can consider them.  

Overdrafts 

An overdraft is not a loan. It is rather a bank service that enables you to borrow money from your current account when the balance reaches zero. The balance reflected in minus in your account is called an overdraft. It could come in handy when you need money urgently. 

The best part about an overdraft is that money is accessible instantly. You do not have to fill out a lengthy application form.  

• Overdrafts charge interest rates by the day.  

• There is a huge risk of debt accumulation. 

Tip: Overdrafts should be used only when the nature of the expense is urgent, and all other means have been exhausted. They are not meant for long-term expenses. You should try to pay off the overdraft to avoid accumulated debt.  

Debt Consolidation Loans 

Debt consolidation loans refer to personal loans that you use to consolidate your existing outstanding loans into one large loan. If you are unable to keep up with the payment dates of payments, you can consider taking out a personal loan to pay all of them off, so you are to deal with payments of one large personal loan.  

• Consolidation loans range between £1,000 and £10,000.  

• They simplify payments as you are supposed to make only one payment every month.  

• Monthly instalments will remain fixed throughout the loan term. 

• The repayment term lasts between six months and five years.  

Tip: there is no guarantee that lenders will consolidate all your existing outstanding debts. Consolidation helps you only when you address the cause of falling into debt.  

Small emergency loans 

Small emergency loans are exclusively available from direct lenders. Banks do not provide these loans because they do not have a provision for lending a paltry sum of money.  

• You can borrow between £100 and £1,000.  

• These loans are discharged at one shot.  

• The repayment term of these loans is between 14 days and a month. 

• They charge very high APRs, up to 500%.  

• These loans cannot help improve your credit score despite on-time payments. 

• There is a high risk of falling into debt. 

Tip: You should never use these loans for recurring expenses. Use these loans with caution because they charge exorbitant interest rates. 

The final word 

There are various borrowing options that do not require collateral. Though there is no risk of losing your personal assets, it does not mean they are not risky. There is a risk of accumulating debt. Exercise caution while using these loans.