The unsecured debt level in the UK reached £3,838 per adult in November 2020, as debt issues continue to mount in the wake of the pandemic.
Unsecured or personal loans are among the most popular on these shores, as they negate the need to secure the amount of capital borrowed against collateral such as your home or a high-value car.
Of course, unsecured loans tend to feature increased interest rates, increasing the amount that borrowers have to repay over time. So, what steps can you take to secure the best interest rates on your loans? Let’s find out!
#1. Only Borrow the Amount That You Need
While it’s a bizarre rule of personal finance that borrowing less money can occasionally cost more through an unsecured loan, as a general rule, you should only borrow an amount that you need.
The reason for this is simple; as it encourages responsible financial decision-making, while simultaneously enabling you to repay your debt easier and minimise the amount payable in interest.
This can also build on any efforts made to initially compare the marketplace and identify potential lenders, as you focus on your own responsibilities and desire to optimise value for money.
You can use online calculators to estimate the cost of borrowing with a particular lender, making it easy to borrow the requisite amount of cash while also guaranteeing manageable monthly repayments.
#2. Consider Secured Lending
While secured lending against your property is a largely unpopular option, the use of collateral encourages lenders to offer more favourable and competitive rates of interest.
This even applies to large loans, as secured borrowing directly minimises the lender’s risk and makes them more inclined to offer larger amounts of money to their customers.
In the current climate, you can also access secured loans against your home with flexible terms, while entering into longer agreements that can last up to 20 years.
No obligation quotes are also freely available, enabling you to compare the cost of different types of borrowing and make an informed decision that benefits your own unique circumstances.
#3. Review and Improve Your Credit Score
When it comes to unsecured borrowing, it’s often income and earnings that informs how much lenders are willing to offer you.
However, it’s your credit score and perceived reliability as a borrower that will impact the interest rates offered by lenders, as this remains a measure by which lenders offset their risk and strive to profit from the transaction.
So, before taking a loan, it’s worth reviewing and tidying up your credit score, by paying down overdue debts, removing outdated liabilities (that are more than six years old from the date of default) and correcting any admin errors.
This includes ensuring that your credit report has up-to-date information, particularly pertaining to your full name and address.