A guide to Loans

WHY TAKE OUT A PERSONAL LOAN

In the quest for borrowing money, all consumers must explore all options available to them, before making the financial decision to borrow money from an institution. The first option, is the secured option; however, we will explore the second option available to us, which is the unsecured loan.

PERSONAL LOANS

Unlike the secured loan, an unsecured loan does not require you to possess any collateral for the loan- whether this might be assets or a property. This type of loan is not secured against your assets, and is therefore more of a risk for the lending institution and more stringent criteria are used to assess these types of applications. It is therefore important that the lender has visible evidence of a good credit history as well as sufficient earnings to meet regular loan repayments.

There are different types of lenders that you may choose from.

Lenders include high street banks and building societies, but you may find that specialist lenders are able to offer a loan to you where the high street branches are unable to, due to their less restrictive criteria or though their specialism in a particular area. For example the self employed, company directors, tenants, students or people with mortgage arrears, an adverse credit history and a County Court Judgements may be the ones that are often not looked as primary candidates for lending facilities. Without onerous requirements for arranging security an unsecured loan is relatively quick to arrange and funds can be made available often within 24 or 48 hours of being accepted by the lender.

The terms of the loan will reflect the risk profile of unsecured loans however and characteristically will allow lesser amounts to be borrowed and have a higher rate of interest. An unsecured loan will usually have a fixed term and a fixed interest rate and is generally repaid monthly. Some lenders allow payment holidays and some will allow penalty free early repayment. Remember to shop around for the best unsecured loan deal. An unsecured loan is therefore suitable for those looking to borrow up to around £15,000 and who have a good credit history and obvious ability to make repayments.

As the size of the loan is generally smaller than that of a secured loan the term of the loan will often be shorter, usually up to 5 or 10 years. While security over your home is not required lenders often prefer homeowners to other borrowers. It may seem that an unsecured loan is less risky to the borrower as the loan is not secured against their house. In reality you should, as with any loan, be vigilant to meet your payment obligations because court proceedings used to recover outstanding balances will inevitably take your assets into account.

An unsecured loan can be used for a variety of purposes including for example buying a car, going on a holiday, home improvements or debt management and consolidation. Look at unsecured loans from across the market. Whether you are looking to buy a new car, make some home improvements or consolidate existing debt make sure you get the right loan deal. Unsecured loans come in all shapes and sizes and there are several aspects to be taken into account before settling for one. Some of these include interest rates (a higher interest rate will increase the cost of the loan) and the loan amount (which depends on your circumstances and this may be limited).