Unsecured Car Loans
Unlike a secured car loan, an unsecured car loan does not require you to provide an item of security to guarantee the loan. This means that you pose a higher risk to lenders, because they cannot easily reclaim their money if you fail to make repayments. To reflect this, the interest rates that apply to unsecured car loans tends to be higher than those for secured loans: even for those people with good credit scores (see Credit Rating).
Depending on your financial situation and your lender, you can typically borrow between £500 and £15,000 with an unsecured car loan. Some lenders will offer larger loan amounts, but if they do so interest rates tend to be higher. The length of time that it takes for you to pay back your loan will always affect the overall cost of the loan; interest is charged on the amount you have borrowed until this amount has been repaid. Although most lenders will allow you to choose how long the loan will take to pay back (this period of time is referred to as the loan's 'term'), it is important that you do not take out an unsecured car loan over a long period of time: advisers suggest a maximum of five years. As interest rates on unsecured loans are higher than those for secured loans, you should reduce the term by as much as possible so that the loan does not end up costing you too much. For more information on how interest affects the cost of a car loan see Interest Rates.
It is more difficult to obtain an unsecured car loan than a secured car loan, and there are certain conditions you must satisfy before your application can be successful: you must be at least 18 years of age, and you will typically need to be in full-time employment. You may also need to give proof that your income is sufficient to make the loan repayments. The lender will also look for a good credit history before accepting your application. If you cannot repay the debt, the lender may take you to court, where the assets that you have which could be used to repay the debt will be taken into account.
