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Usecured Loans

As the name states, an unsecured loan is a loan which does not need the borrower to use any form of security against it. These forms of loan are basically personal loans where the loan lender does not have any claim on the borrower’s property if they cannot keep up with the repayments. Instead of this, the lender is solely relying on the borrower’s ability to meet their loan repayments.

People who choose these unsecured loans are generally those who are not in a positioning which they can offer any form of collateral whether it is property or other high value assets, such as a vehicle. Other people would include those who have bad credit records, mortgage arrears, county court judgments or debt problems.

Because of the nature of these unsecured loans, it actually means that the lender will be taking higher risks as they have no collateral against the borrower to fall back on. Because of this, the interest rate on these loans is a lot higher than that of a secured loan. On the other hand, while someone who has a bad credit record will not necessarily mean that they cannot apply for an unsecured loan, they may well be charged higher rates of interest which will reflect the lender's extra risk.

Unsecured Loans:

There will also be a greater risk to the lender, if the borrower has a tendency to make late payments. Without the security of collateral, the lender may well be quicker in taking legal action legal action against the borrower in order to recover the missed instalments. In cases like these, the lender will normally demand a repayment of the total amount borrowed by the lender including interest and legal costs that are incurred. In such cases, the court proceedings could lead to the borrower’s property being sold in order to raise the finances.

The amount of money that a borrower is able to borrow with these loans can range from as little as £500 up to £25,000. Because they are not securing the money they are borrowing, lenders will tend to limit the amount of an unsecured loan up to £25,000. The repayment term of these loans will range from around six months to ten years.

The majority of lenders will give the borrower a choice of repaying the loan back over a period of six months to ten years. It will be their decision on how much or little time they want to pay the loan back in full though it is advisable for them to try not to stretch themselves too much because the last thing they want is to default on their repayments.

In spite of this, the borrower should try to repay enough each month to make sure that the loan does not drag on for a number of years, as this could mean that they will be paying back a lot more interest, and this will therefore mean that the loan will in due course cost them more money. The borrower will need to find a sense of balance between what they can afford to pay each month.

A benefit of obtaining an unsecured loan is that the loan application is normally processed a lot quicker compared to a secured loan because there is no collateral which needs to be valued.

One of the disadvantages of these types of loans is that it will be more difficult for someone to be approved for an unsecured loan. The lender needs to be more cautious because there is no collateral on offer.

These loans can be used for a number of things such as a relaxing holiday, a wedding, a new car, home improvements or debt consolidation. Whatever the borrower requires the loan for there will be a few things that they will need to consider prior to applying for the loan.

With these loans, they will not be borrowing against the value of their house. They will normally be offered a rate of interest which is based on their circumstances and the sum of money they want to borrow. In other words, the 'typical' interest rate which is advertised may not be the actual rate they are offered - their rate will also depend on their credit rating.

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