The key advantages of an unsecured personal loan is that you can decide on the amount (maximum of £25,000) and term (12 to 60 months) you desire and the funds will be in your bank account within 1-5 days. You can also apply for an unsecured personal loan at any point in your probate journey. This might be useful if you need to pay for a funeral or for solicitors' fees before you receive a Grant of Representation.
However, you will also need to make monthly repayments and if you were to miss any repayments, it will affect your credit score negatively. It may also be harder to get a loan if your credit score is poor, and the interest rates available will be higher. With an unsecured personal loan, you are not borrowing the money against the value of your future inheritance. So if it turns out that you can’t meet your monthly repayments, the lender won't be able to reduce your inheritance.
Unsecured loans are largely the same and so are easier to compare based on price, however, if you are planning to refinance your unsecured loan with an inheritance loan later in your probate journey it is worth paying attention to whether the provider will charge you a fee to settle earlier than the term you requested (we will indicate lenders that charge an early settlement fee).
The key advantage of an inheritance loan is that you will not need to make any monthly repayments. In some cases, the lender will not require any sort of credit check for this type of loan as your current financial situation is not relevant to their lending decision. This might be useful if you need to borrow a larger amount that you are unable to afford prior to receiving your inheritance, for instance, to pay inheritance tax.
However, inheritance loans typically take longer to arrange (5-10 working days) and may require a Grant of Representation or the submission of an IHT400 before you can receive the loan. With a inheritance loan, you are borrowing the money against the value of your future inheritance, normally by either an assignment of your rights under the will to the lender or through some sort of legal charge (like a mortgage). You won’t need to choose a term as the loan is repaid by the estate executor as funds become available, so what you ultimately receive will be reduced by the amount of the loan and interest due.
Inheritance loan products also tend to be quite different making them more challenging to compare. Things to look out for are:
Initial fees: Some providers charge an initial fee, if you have a complex case that will take a long time to distribute then this might be worth paying if the interest rate is lower but if you have a simple case that will be wrapped up quickly it may make the product more expensive
Pre/Post-Grant: Some providers will lend before you receive a Grant of Representation but some will not. If you are looking to pay inheritance tax to receive the Grant of Representation then you need to ensure that the product is available pre-Grant
Intestacy: Not all inheritance loans are available in intestacy cases
Estate or beneficiary loan: Does the loan need to be made to the estate rather than to you as a beneficiary? If so, you will need to get the consent of the executor and potentially other beneficiaries. If you are the sole beneficiary and the executor then this is less of an issue