Imagine, falling into an emergency with an empty bank account. Does it raise your blood pressure? Doesn’t your happiness vanish? Indeed, it does. The matter aggravates when you have no one to bank upon, no property or asset to offer as collateral or you don’t want to put your beautiful home at risk, to get those much-needed funds. Unsecured loans are the perfect instruments to rescue you from such a situation.
The greatness of unsecured loans is that they are designed for borrowers who do not have anything to offer as collateral. The lender who provides the unsecured loan has no claim to the property or assets of the debtor, should they fail to repay the loan on time. Unsecured loans are given on the creditworthiness of the borrower.
Many people in the UK have CCJs against them and are plagued by debt issues. The lenders, who thrive on the interest they get on their loans, consider lending to such people a risky proposition. To counter the risk involved in such a loan the interest, they charge on unsecured loans is often higher than the secured loans.
Since, there is no collateral, which the lender can possess and sell to recover his money in case of default, he wants to ensure the creditworthiness of the borrower before giving any loan. Unsecured loans, due to this reason are given after a thorough check of the borrower’s credit history and financial condition.
Unsecured Loans are a risky business. The lenders are wary of giving large sums as loan. So, the amounts shown are smaller. Usually, with an unsecured loan, one can get anything between £500 and £ 25000.
The repayment schedule of the unsecured loan is designed to increase the profit and minimize the risk for the lender. Most lenders will give you the option to repay the loan between periods of six months to ten years. The longer the tenure of the loan, the greater is the interest you pay on it. It is in the interest of the borrower to decide on a monthly instalment that doesn’t pinch him and makes the repayment period as shorter as possible. This is often a tricky situation, but with consistent financial discipline, the borrower can salvage the situation.
There are many advantages to getting an unsecured loan. The application given for any unsecured loans is approved faster than those for secured loans. The simple reason being that there is no property valuation to be done since no collateral is offered. The fees associated with property valuation is also absent in the case of unsecured loans. Unsecured loans are available to borrowers having CCJ’s or unfavourable credit ratings, but a good credit record helps in getting a better deal.
Unsecured loans can be used for a variety of purposes, some of which are enumerated below:
- It can be used to fund that dream cruise or beach holiday.
- It can be used to get funds to carry out home improvements.
- It can be used to pay off existing debt, or consolidate multiple debts into one and ease the repayment problem.
- It can be used to cover arrears in mortgage repayments and to make it more manageable over a more extended repayment period.
A borrower can get an unsecured loan at a rate different from the rate advertised by the lender. Depending on your creditworthiness and the amount you want to borrow, he might charge you a higher interest rate or provide a loan at a lower interest than the one advertised.
As is true with all other loans, the unsecured loan must also be repaid on time. Non- payment of the instalments or default might attract legal action from the lender to recover his amount. If he is forced to take such a drastic step, it will reflect poorly on the creditworthiness of the borrower.