Frequently asked questions about unsecured loans
Here are a few of the questions our customers often ask.
Are unsecured loans bad for my credit rating?
No. In fact, a well-managed loan repayment can help you to improve your credit rating if managed properly.
By making regular payments and repaying the loan in full within the agreed time frame – or before - you’re demonstrating to future lenders that you’re a responsible borrower.
However, if you fall behind on payments or default, your credit rating will be negatively affected.
Why is an unsecured interest rate higher?
Interest rates are generally higher on unsecured loans than secured loans because the lender doesn’t have any security, such as property, to protect the money they’ve lent to you.
They also may charge more interest if you have a low credit score or are paying off an unsecured loan from a different provider, due to the change in situation and associated risk perceived by the lender.
What happens to an unsecured loan after death?
If a person dies and leaves unsecured loans unpaid, and they have no assets that can be exchanged, the debts will be written off. However, if the deceased has assets, the amount owed will be taken from their estate. You can read more about this here.
What is a soft search?
A soft search lets a lender see your credit report without leaving any trace of their search on your public record – so you will be able to see it, but other lenders won’t.
Hard credit searches, on the other hand, are visible and may negatively affect your credit score if they lead to unsuccessful loan applications.
How many unsecured loans can I have?
There’s no official limit to how many unsecured loans you can have at one time. However, you should always make sure you can afford all the repayments and interest fees before taking out an additional loan.
If you have multiple loans, it’s also worth noting that lenders will be able to see this and may opt not to lend you more money if the perceived risk is high.
What happens if I default on an unsecured loan?
If you default on an unsecured loan, the lender can add fees or penalties to the total amount owed, and take legal action to recover their debt. Ultimately, the loan may be taken over by a collection agency, who will pursue you for the outstanding payments.
Can an unsecured loan become secured?
Yes, it’s been known to happen but isn’t customary. It may occur if you continue to miss your repayments to the point where your lender (or creditor) takes you to court. If this happens and you’re ordered to pay back the money you owe, a charging order might be used. This allows the lender to secure the debt against an asset you own, for example your property. You can learn more about this here.