Amount of credit: £1,800 for 24 months at £135.47 per month. Total repayment of £3,251.27. Interest: £1,451.27. Interest rate: 65% pa (fixed). 88.1% APR Representative.
On Stride Financial takes pride in providing personal loans to those who need extra funding. Our process prioritises transparency, and we've created an online application built with simplicity in mind. By offering variety of loan amounts and loan durations, we've designed a personal loan that can be customised. With loan amounts available from £1,000 to £3,000, our unsecured personal loans can fit your financial lifestyle. Additionally, On Stride Financial offers loan durations of 1 or 2 years.
If you've ever gone in search of a personal loan, the chances are your results included the term “unsecured loans.” To understand exactly what an unsecured loan is, it helps to understand its counterpart — the secured loan. Secured loans are personal loans wherein the lender requires that the borrower possess “assets” as collateral. These assets — essentially any property that’s considered to be of adequate value, like cars or a home — can be seized by the lender in the case that the borrower isn’t able to repay their loan in full.
On the other hand, an unsecured loan is a loan in which the lender doesn’t require security on an asset or assets from the borrower. While the borrower is typically required to go through the same application process, the lack of collateral with an unsecured loan makes it a very different beast from a secured loan.
“The higher the risk, the less likely that lenders will be willing to lend larger amounts..."
Because unsecured loans don’t provide the lender with equivalent assets, these loans are considered a higher risk for the lender. This is why unsecured loans tend to be for smaller amounts than secured loans — the higher the risk, the less likely that lenders will be willing to lend larger amounts. This is also why unsecured loans often come with a higher interest rate than secured loans. By increasing the amount that a borrower will have to pay on top of the loan amount, lenders can balance the greater risk inherent to an unsecured loan.
A variety of loan types, loan amounts, fees, rates and terms can make the prospect of finding the right loan especially daunting, but there’s another consideration that brings an added dimension to the loan hunt: banks vs. alternative lenders.
Banks typically offer both secured and unsecured loans to potential borrowers, in addition to a variety of loan options, fees, rates and terms. Bank loans will often offer a lower APR — typically below 30%. Bank loans also tend to be for larger amounts and longer durations. This is a result of banks working to take on the least amount of risk when granting loans, a distinction that allows them to offer more funding to their approved customers, who also tend to possess strong credit ratings.
"The near-prime lender... sits somewhere between banks and short-term lenders."
While banks represent one kind of lender, “alternative lenders” make up a more diverse group of lenders. This is in part because alternative lenders often provide funding to individuals who aren’t eligible for bank loans, a group that requires an array of lenders to handle its myriad needs.
One kind of lender in this alternative category is short-term lenders, a group that encompasses “payday” lenders. Short-term lenders are an option worth considering for individuals in need of meeting emergency expenses. Their loan amounts are typically lower — often under £1,000 — and the time it takes to get funds is often much shorter than a bank loan. This convenience tends to bring a higher interest rate, but that can vary dramatically from one lender to the next.
The other key alternative lending type is the near-prime lender, who sits somewhere between banks and payday loan companies. Their loans are generally longer and larger than payday loans, and their interest rates are correspondingly lower. While short-term loans are suited more to emergencies, near-prime loans are often used for larger, planned expenses, like home improvements or auto upgrades. On Stride Financial is an example of a near-prime lender.
Finding funds urgently, particularly in the case of an emergency, can consume your thoughts. When you're suddenly faced with a debt that feels insurmountable, you may find yourself rushing to the first short-term lender you find and filling in a loan application before even considering the implications.
Taking on a loan is a substantial commitment, regardless of the lender or amount being borrowed. It means agreeing to repay even more than you borrowed, and often on someone else's schedule. That's why, even in an emergency, it's important to take a moment and analyze if a loan is absolutely necessary.
"Even in an emergency, it's important to take a moment and analyze if a loan is absolutely necessary."
While an emergency cost such as a broken-down car or damaged roof — isn't typically a debt that can be deferred, not all debt works this way. Take a moment to add up the kind of expense you're faced witht, and make sure that borrowing is an absolute necessity before you commit yourself to a loan. Consider approaching whomever you owe funds to, and see if they would consider postponing your repayment. For instance, if you're late on your rent, instead of rushing out to borrow funds, have a conversation with your landlord. You may find that they're open to flexibility, if you're willing to meet them half way. This could mean adding a late fee to that month's rent, and while paying more is not ideal, it's better than taking on a loan that will certainly bring an interest rate, and will cost you more in the long run.
Assessing how much cash you need is a crucial consideration, and not just because you need to ensure that you borrow enough to cover your needs. Approaching a loan with an exact number in mind will help you focus your search, if for no other reason than different lenders tend to offer different loan amounts.
"You should never borrow any more than what you absolutely need and can repay."
For some people, taking out a loan may seem like the right time to try and plan ahead. The logic goes something like, "If I'm already in a situation where I need to borrow, why not borrow more than I need right now so I don't find myself in this situation again?" While this may seem reasonable, the truth is that you should never borrow any more than what you absolutely need and can repay. With interest rates, the more you borrow, the more you have to repay on top of the initial loan amount. This means that taking out an extra £100 will make it even harder to repay your loan, instead of helping you shore up your future.
While it may be an afterthought for many, taking stock of the amount you can afford to repay should absolutely be considered when determining your loan amount. Understand not just how much you're borrowing, but how much you'll be repaying with interest, and decide if that's a reasonable debt for you to take on. Consult the lender you're planning to apply with, and ask them what your repayment options are. Can you repay early? Can you alter the number of repayments, or the time over which you repay the full amount? Make sure to have as much information as you can prior to choosing your loan amount.
This may seem obvious, but far too many individuals borrow funds without thinking through how they will repay. While a need for urgent funding may not seem to allow for comprehensive planning, the truth is that considering your finances and how you'll repay can go a long way in making your repayment process easier.
"The reality is that having a hard repayment date can be a good thing."
The best way to start this process is by creating a budget for yourself. Look at your monthly income, your monthly expenses, and see what you have left over — making sure that you have enough in that amount to make repayments. Not only will it help you ensure that you're allotting funds for your loan repayments, but it will also help you to get a clearer picture of your finances in general, and where you can be more conservative with your spending.
With many lenders, you'll be expected to make loan repayments on an agreed-upon date or dates. While this deadline is generally unmovable, and missing it can result in late fees, the reality is that having a hard repayment date can be a good thing. From the day you take your loan, you can have that date or dates circled on your calendar, and build your budget around your repayment.
As covered in the first section, unsecured loans are considered to be a bigger risk by lenders, because they lack the collateral that a secured loan requires. This can have a variety of effects on the ways that unsecured and secured loans differ, but the primary result is that unsecured loans often have higher interest rates than secured loans.
However, it’s important to bear in mind that, just because a secured loan may have a lower interest rate, this doesn’t necessarily make it the better choice for a borrower. Because secured loans require guaranteed asset, the risk is greater for a borrower, as they could end up losing an important asset if they cannot repay it.
The reality is that, while interest rates differ between secured and unsecured loans, this should not be the only consideration when choosing the right loan for you. Take into account every aspect of the loan you're considering — the loan amount and duration, monthly repayments, and fees — in addition to your individual financial circumstances.
While the consequences of not repaying a secured loan are a bit more obvious — loss of the assets committed as collateral for the loan — it’s less predictable what exactly the consequences will be if you can’t repay an unsecured loan. This is in part because different lenders have different policies. For instance, where one lender may gave you a grace period for a missed payment, another could charge you a late fee as soon as a payment is missed.
If an unsecured loan is defaulted on entirely, then typically the lender’s collection department will be tasked with following up on the loan. While a borrower can still repay the loan during this period, there's a good chance that late fees will be attached. In some cases, you may even be facing post-default interest, or interest charged on the missed payment.
If a lender’s collection department is unable to obtain the funds, in many cases they will either attempt to collect the debt themselves, or sell the debt to a collection agency. These are third-party debt collectors who, having purchased the debt, have a financial interest in seeing it repaid. In the worst cases, a debt collector may even take a borrower to court in the hope of receiving a judgment that the borrower must repay.
No matter how a lender decides to handle your debt, if you miss your unsecured loan payments, it will more than likely be reported to a credit agency. This can have a negative effect on your credit score,which in turn would make it harder to find credit opportunities in the future.
Remember that, even if you were to apply for both loan types, your options could be limited by your financial history, credit history, existing assets and other variables.
That said, the best place to start when considering the best loan option for you is by taking a close look at your own financial situation. Check your credit score through one of the three credit bureaus — CallCredit, Equifax and Experian — and determine how it may affect your eligibility. Consider what assets you have, and whether or not they would be considered appropriate for holding by a lender. Decide how much cash you need, as this can play a key role in whether or not you need a secured or unsecured loan — in most cases, secured loans are for larger amounts than unsecured loans. And finally, determine how long it will take you to repay the loan you're requesting by budgeting your monthly repayments from your income and expenses, and figuring out how much you can afford to pay.
As with any financial commitment, the best way to start is by exploring your options. Look at as many different lenders as you can — starting with banks — comparing their terms, fees, loan amounts and interest rates. This should give you a good idea of how these lenders compare objectively, but it’s also important to consider your own unique circumstances. While one lender may seem preferable thanks to a lack of fees or some other consideration, their loan amounts and loan terms might not match up with your needs.
If you’re having trouble finding useful information, you can also use a loan comparison site. These are websites set up to compare key elements of different lenders and the funds they provide. Taking advantage of this service can cut down on the amount of work needed to understand your options. In some cases, a comparison site may even help you customise your search by inputting key financial information about yourself.
Finally, if you want to get an idea of what you’re eligible for, it can be a good idea to request your credit score from any of the free credit score providers. This will give you a sense of what type of loan you’re eligible for. This kind of request won’t appear on your credit history.
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