Unsecured loans are offered without any collateral. This implies
that a borrower will not have to part with rights on home or any asset
for availing the loan proceeds. There are two categories of people who
use unsecured loans. Firstly, there are tenants and non-homeowners who
use unsecured loans out of necessity. The second group is of homeowners
who have lately joined the users of unsecured loans.
Homeowners
traditionally were the customers of secured loans. Through secured
loans, these borrowers were able to get hold of excellent deals,
complete with a low rate of interest and easy repayment options.
However, the apprehension regarding repossession of home was not to be
shrouded under the attractive features. Though this has been accepted as
no more than a myth, many of the regular customers of secured loans
were dispersed as a result of this. These customers opted for unsecured
loans.
Unsecured loan providers do not get a direct stake on any
asset. Even if borrower fails to pay the loan amount in full, loan
provider cannot undertake direct action to recover unpaid amount.
Compare this to secured loans, and you find the lender misses no time to
liquidate asset in his possession. One only gets a little extra time
when using unsecured loans. Beyond that even unsecured loan providers
are going to initiate legal proceedings to recover the amount.
Therefore, unsecured loans must be taken as seriously as one would a
secured loan.
Unsecured loans are advanced in the range of �1,000
to �25,000. The sum is relatively low in contrast with sum lent in
secured loans. Therefore, unsecured loans are best used when the
expenses involve lesser amount. Minor home improvements, footing holiday
bills or debt consolidation form the most common uses of the unsecured
loan proceeds. Unsecured loans are very adaptable to all kinds of
personal purposes.
For raising unsecured loan, borrower must
preferably have a good credit history. This loan is lent against
personal credibility of borrower in the absence of collateral. A
borrower with bad credit can face difficulty in qualifying through high
street lenders. For brokers however, this is an easy task. A broker is a
mediator between banks and borrowers. When broker approaches banks with
the application of borrower, they get a better response. Banks know
that brokers may have undertaken tests of credibility; therefore, they
lend to the applicant.
When borrowing through unsecured loans, borrowers
particularly feel the pinch on the clause of APR. APR or the rate of
interest is generally higher in unsecured loans. The higher risk
involved is to be blamed for the increased APR. Increased APR is
inevitable and therefore reasonable. However, the premium over the
reasonable APR that borrower have to shell is evitable. Borrowers can do
two things in order to avoid paying unreasonable rates. Firstly, they
must be up-to-date on the prevailing rates, lowest rates, rates
according to credit circumstances and the different interest options in
the UK. Secondly, borrower must accept the fact that it is not difficult
to get good deals. Proper research is what is required to achieve
these. Research nowadays is easier, thanks to the massive resources on
the web. A person can view several loan providers' products and gain
important information about them; all for free and in a small span of
time.
Nowadays, borrowers' application is received through the
online mode. Loan providers have thus made the process of raising cash
convenient for borrowers. It has also been convenient for loan
providers, as they do not have to directly deal with the customer
traffic.
Unsecured loans have to be repaid between 5 to 25 years.
Borrowers generally enjoy discretion on the method of repayment. The
monthly or quarterly repayment method scores over other methods in the
sense that the loan is successfully repaid and borrower is not
over-burdened.