Firstly let me say, that not all unsecured loans are more expensive than their secured brothers. If you have a perfect credit record without any problems, a decent job, are on the electoral roll and basically don’t need the loan, then it’s possible that you can get an unsecured loan that is as cheap as a secured loan.

A generalisation it may be, but unsecured loans are generally more expensive. They can be used for pretty much any purpose, but you pay extra simply because the lender has no guarantee that you’ll repay the loan and may have to pursue you through the court system if you don’t.
When you apply for an unsecured loan, you will be asked some questions about your financial situation and why you want the money. The creditor will perform a credit check with a credit reference agency, usually Experian or Equifax. They do this to make sure that they are lending you the money responsibly and that you can afford the repayments. This is usually a fairly quick process.

If you fail the credit check, then unfortunately, the lender can not responsibly lend you the money you have asked for. Different lenders have different policies though and just because one lender doesn’t want to lend you the money, others might. There are many companies such as tenantloansuk.com who deal specifically with offering unsecured loans to those with a poor credit history.

If you pass the credit check, the lender will offer you a set APR which will be based upon how well they think you will be able to pay the money back. If you have had credit problems such as late or missed payments, then the APR you are offered is likely to be much higher as it is seen as more of a risk to lend you the money.

You’ll be sent a contract to sign, read through the contract carefully as this lays out how the money is to be repaid and any fees that can be applicable if you fail to make payments on time, as well as the responsibilities of the lender and the terms and conditions of the loan.
If you are happy with the terms and conditions of the loan and feel that you are able to meet the terms of the loan responsibly as laid out in the contract, then sign the contract and return it to the lender. Remember that if you have made a joint application, then the joint applicant will need to sign the contract as well.

When the lender receives the contract back, they will then arrange for the money to be paid to you. Usually, this is by electronic transfer into a bank account you have designated.
Once you have receive the funds, you can use the money for the purpose you originally told the lender. This can be any number of things such as debt consolidation, or home improvements or even funding a wedding.

You then pay back the loan usually on a monthly basis (although some lenders will let you pay it back weekly) as set out in the terms and conditions of the loan.

Jim Seward writes for Consolidate UK who offer debt consolidation loans to those struggling with their monthly payments. They also offer helpful tools