What is the Interest Rate for an Unsecured Personal Loan?

by Lauren Strom Content Writer

Personal Loans
An unsecured personal loan, as the name suggests, is a loan that is taken out by a borrower without putting any property or valuables as security. There are a few credit providers who offer these loans without any guarantor as well. That means a borrower can easily gain access to funds to resolve their financial emergencies without indulging in finding a guarantor or arranging collateral. That also means the borrower doesn’t have to go through much paperwork to avail the loan. It can be applied with minimal documentation that will save a great deal of time and effort for both the borrower and the lender.

A personal loan generally allows you to borrow up to £35,000, however, a few lenders may allow you to borrow more than this. The risk involved in borrowing a personal loan is relatively less than a secured loan wherein the borrower has to put forward any of their valuables as security. And if the borrower defaults on the repayment of a secured loan, their property might be possessed.

Interest Rate for a Personal Loan

The rates of interest on an unsecured personal loan vary from lender to lender. The rates are always decided by the lenders and the decision is taken on the basis of several factors. Credit providers tend to consider a variety of points while making a decision about whether to extend a loan offer to the borrower or not. Major factors that influence the rate of interest that you will be offered are listed below:

1. Credit score

Your credit score is instrumental for the rate you receive. If you have a stellar credit score, the rate of interest that you may receive may be affordable while with a poor credit score, your chances of getting a lower rate of interest is likely to be less.

2. Employment status

A predictable and steady flow of income every month will help the lenders decide better. As no collateral is involved in the borrowing process, the lenders need a kind of assurance that the money they are about to lend to will be repaid by the borrower.

3. Debt-to-income ratio

Debt-to-income ratio is the amount that you get if you divide the sum of all your monthly debt repayments by your gross monthly income. Lenders use this to measure your ability to repay the loan and they set an interest rate accordingly.

Conclusion

If you are applying for an Unsecured Personal Loan in the UK then you must know what factors influence the rate of interest. Also, the tenure chose for the loan also affects the rate of interest. If you opt for a high loan amount with a longer duration, then certainly, the rate of interest offered will also be high. The amount you choose for your loan is significant in the interest rate. Because the risk associated with the loan will also be higher. Explore around before choosing any deal to find the best rate available in the market.