Unsecured loans
What are unsecured loans
Unsecured loans are those loans that are provided without any security or collateral. Thus, unsecured loans are not secured against any asset of borrower .In case the borrower defaults in making repayment of unsecured loan, the lender is not able to sell any security and thus, is always at great risk. This risk is compensated in the form of interest rate and this is the reason why unsecured loans are provided at very high interest rates as compared to secured loans. Credit card debt is also categorized as unsecured loan as a person can raise this debt without providing any security .Credit card debt is converted into unsecured loan when a person is unable to repay the amount used for making purchases or cash withdrawal within the specified period .Similarly, an overdraft made by person in any of his checking account is also considered as unsecured loan. In case, overdraft facility is provided by means of lien or any other security, it cannot be termed as unsecured loan.
Getting unsecured loan
Eligibility criteria for getting unsecured loan differ from one lender to another. In United Kingdom, most of lenders of unsecured loan require a person to be of at least 18 years. Homeowners as well as tenants can also take unsecured loans. Though there are many lenders that can be contacted for getting unsecured loan, getting it online is easiest. A person can fill in the application for unsecured loan within few minutes and the amount is provided to him in no time . Most of unsecured loan lenders in United Kingdom also allow persons with bad credit to take the loan. The amount provided under the category of unsecured loan differs.A person can obtain unsecured loan from 500 to 25000 pound sterling in United Kingdom. The amount and the repayment period along with interest rate is decided on the basis of a credit scoring models that are used by most of lenders in UK. Since collateral or security is not provided for getting the unsecured loans, these are the fastest loans that can be obtained . Fewer documents and easy application form also saves time.Processing charge is a type of fee that may be asked by some sources. Unsecured loan has some advantages and disadvantages over secured loan. The advantages of unsecured loan include less documentation, fast processing, no requirement of collateral or security and competitive quotes. The disadvantage associated with unsecured loan is that it is provided at higher interest rates.
CCJ or County Court Judgments are not considered as any deterrent and thus, a person with CCJ can also get unsecured loan.
High interest rates require a person to search for the cheapest lender thoroughly, as interest rates of different lenders vary.This can be done by comparing the loan quotes of various lenders.There are many online sources that provide quotes for unsecured loan.Loan calculator is also loaded at such sites and a person can take the decision instantly.Most of lenders of unsecured loan allow a person to apply for the loan at no obligation basis. Apart from above, there are many online sources that provide free unsecured loan quotes. For getting the quote, a person is required to enter the required information in the prescribed format. This information includes the amount of loan, the duration of loan, the monthly income of the person and the personal details. There are some lenders that ask for the credit score also. Once all the information is submitted, the person is supplied the list of all the lenders that provide unsecured loans. A person can then choose the cheapest lender.
Some other aspects
While making comparison, a person should use APR or Annual Percentage Rate attached with unsecured loan rather than interest rate. This is because APR signifies the total annual cost of loan and includes all the types of charges and fees pertaining to unsecured loan. Other aspect regarding unsecured loan that a person should understand is that though all the types of bad credit borrowers can apply for unsecured loans, person with multiple bankruptcies is not allowed to take the unsecured loan. There is no restriction on purpose of unsecured loan and a person can take this loan for fulfilling any requirement.
Payday loans or cash loans are also included in the category of unsecured loans, as a person is not required to provide any security or collateral for getting the payday loans. Payday loans are the short-term loans that are provided for bridging the financial shortcomings up to the next payday of a person. There are some payday loan centers that take advance post dated check from a person. Payday loans are given as very small amounts and a person can get a maximum of 1000 pound sterling in UK or $1000 as payday loan in United States. Among all the unsecured loans, payday loans are the costliest loans and in many cases, the annual cost reaches up to 350%.If a person is not able to repay the payday loan at the first payday, the finance fee attached to the payday loan increased many times. These unsecured loans are mostly provided online and the amount is deposited directly into the account of a person.Personal loans are also categorized under unsecured loans if no collateral has been provided. Most of lenders in UK provide personal loan on the basis of a credit scoring model that has been developed specially for these loans. A person is given marks as per his eligibility in various categories and most of lenders require a person to obtain at least 60% marks to get the loan. The documentation pertaining to unsecured loan is short and easy as there are not many documents that have to be provided by a person. A lender can ask for a guarantor. Guarantor can be the relative or friend or any other person, whose net worth is more than the amount taken by the person as loan .
For a lender, unsecured loans have always remained important. Not because overall exposure under these loans is huge, but because of the reason that if not repaid in time by the borrower, the lender loses the money and is required to write off the loan at some future time .
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