fbpx
Business

Getting Educated on Unsecured Loans

Navigating the complex world of unsecured personal loans is never easy, especially when taking out a loan for the first time. Most borrowers who are looking for short-term loans, or loans of a smaller value will be looking to take out an unsecured loan. 

These are readily available through high street banks and online lenders, but other forms of unsecured debt also exists, which you might not have considered before. Here, we talk you through some of the options to help you find your way to the perfect loan for you.

What is the difference between an unsecured loan and a secured loan?

Unsecured loans do not require an asset to be put forward as security. In other words, you do not need to be a homeowner, or borrow against the value of a large asset, such as a car, to obtain an unsecured loan. Instead, the loan provider will usually lend based on a thorough check of your ability to afford repayments.

Do you have to pay a higher rate of interest on an unsecured loan?

Yes, you will usually be charged a higher rate of interest on an unsecured loan as a result of it being a higher risk to the provider. Unsecured loans are also usually offered over a shorter amount of time and are of a lower value than secured loans – also reflecting the higher risk nature of this type of loan. 

What are the advantages of unsecured loans?

When you take out an unsecured loan you are not taking on as much risk as when you take out a secured loan. This is because you cannot lose your home if you fail to make repayments. Unsecured loans are also readily available, especially for those who have a healthy credit rating and have a regular income. If you are in a healthy financial situation, you should be able to pick and choose between providers and find the best rate for a loan that meets your needs. 

Having said that, unsecured loans do not come without some risks. If you cannot meet repayments, you could face even higher late repayment charges and larger interest payments, which could damage your credit rating and lead to unmanageable debts. If you continue to miss repayments, your loan could be referred to debt collection agencies. 

What are the main types of unsecured loans and credit?

Regular personal loans

Personal loans come in all shapes and sizes. Although they were traditionally offered by the big high street banks, they are now also available online and rates and terms have increased in flexibility as a result of the market opening up. 

Personal loans are usually for values of upwards of £1,000, up to around £15,000. Repayments can often be made over a number of months, up to a few years, with interest rates depending heavily on the borrower’s creditworthiness. Therefore, if you have a poor credit rating, you may struggle to find a deal that meets your requirements. You may, instead, wish to consider the next option.

Short term loan/payday loan

Short-term loans or payday loans are smaller-value loans that are usually repaid over a number of weeks or months. You can usually borrow somewhere between £50 and £500 and repayments are expected either on your next payday, or over a few months, in the case of installment loans. 

This type of loan can be easier to secure if you have a poor credit rating, providing you have a regular income and are able to repay the loan quickly. In addition, they are often paid into your bank account within hours of you filling in the application form, making them popular among those who need access to fast cash for emergencies. 

Before taking out a short-term loan, it’s vital to consider whether you can make the repayments, as interest and penalties are usually higher than for regular unsecured personal loans. Nonrepayment can lead to unmanageable debt problems.

Overdrafts

Another option for those who need fast access to money is to apply for an overdraft facility with a current account. If you meet the criteria set out by your bank, you will often be able to take advantage of an overdraft facility, which is a line of credit against which you can withdraw cash as and when you need it. Interest is payable only on the amount you actually spend and penalties exist for those who go over their agreed limit. 

Credit cards

Credit cards are one form of unsecured credit that some people don’t consider. However, they can be a worthwhile options providing you can repay the balance at the end of each month. This is because interest charges are high on credit cards and leaving your balance unchecked and only making minimum repayments can lead to ever-increasing debts that mount up fast. The application process takes a few days, at least, and you have to wait for your card to arrive in the post before you can start spending. 

Comment
by Harness Editor

Harness believes that freedom of expression equals female empowerment. The truth? We’re a badass authentic community of fierce women, and we exist to help your voice be heard. Harness is here to be your safe haven. A place to shed the competition, the insecurities. This is a place to rise by lifting others. This is who we are.


Website

More From Business

How to Optimize Your Website for Voice Search

by Gloria Kopp

5 Ways to Grow Your Capital

by Harness Editor

How to Manage the Finances of a Small Charity

by Harness Editor

Creativity & Success

by Lisbeth Cherrington

Leave a Reply

Your email address will not be published. Required fields are marked *