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Unsecured loans are useful sources of credit for people who do not have major assets such as a house or car to offer as security on a loan. Also known as personal loans, these loans are not secured against any assets. The interest rates on personal loans vary widely, so it is important to understand the applications process in order to get the best possible deal. Here are a few steps that you should take when applying for a loan without security. Check and Correct Your Credit Report Having your application for a personal loan accepted largely depends on your credit history. Credit reference agencies, such as Experian, keep a detailed report of all the debts you have ever held, including credit cards, mortgages, and debts to utility companies. Lenders use this credit report to determine how big a risk you pose. Because people who default on their debts represent a large loss of revenue for the creditor, loan providers need to ensure that they are only lending to people who are able to pay back the money on time. If you are considered a high-risk customer, then you can expect to pay a higher rate of interest than someone with a good credit report. Before applying for an unsecured loan, you should request a copy of your credit report from Experian. This report will show any issues with credit that you have had in the past. Scrutinise the report carefully; occasionally, inaccurate details on credit reports can prevent even the most financially responsible people from getting the access to credit that they deserve. If you find any mistakes, you can ask for the errors to be corrected, as long as you can provide proof that the details that you want to have changed are incorrect. You can also request that a note is put on your credit report to explain why you struggled to meet repayments in the past. A poor credit history will prevent you from accessing the most attractive interest rates. If you are able to delay your loan application for a few months while you work on improving your credit score, you might be able to access lower rates of interest. However, if you need the money urgently, then you may need to approach a lender that specialises in providing bad credit loans. Consider All Possible Providers There are several possible sources of unsecured credit. High street banks are a traditional and still popular source of personal loans. To apply, you can either go into a local branch or apply through the bank’s website. High-street sources of unsecured credit are no longer limited to banks and building societies. Some major supermarkets, such as Tesco, are starting to offer banking services including personal loans. The Post Office is another possible source of credit. By far the biggest growth in personal loan providers is taking place online. Online banks are a good source of credit, with easy online application procedures. Interest rates for these online loans are often lower, as online banks have fewer overheads than high-street banks and building societies. You can compare various loan providers by using a comparison website. Once you have entered your personal details, these websites compare many different providers to find the best deal for your individual circumstances. Choosing the Right Loan Before you apply for the loan, calculate exactly how much you need to borrow and how long you need to keep the money. Loans with low monthly payments may seem attractive, but repaying only a small amount each month could mean that you will be repaying the loan for many years to come. Try to find a loan that allows you to make overpayments without being penalised, so that you can become debt-free as quickly as possible. The key thing to look for when applying for a loan is a low rate of interest, also known as the loan APR. Most unsecured loans charge interest at a fixed rate, so you will know in advance exactly how much borrowing will cost you. Before taking out any loan, make sure you have a clear plan for paying back the money in a timely manner. The author,Sam Jones , thinks that unsecured loans are useful but risky if you don't make sure you are fully able to repay them.
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