Unsecured loans are those types of loans affording which you don’t need to put any of your assets for loan security. For this advantage, it may seem ideal because it is supposed to have less risk. So if you take unsecured loans you will not need to keep your assets like home, car etc. as security to the lender. That is the theory anyway. If you do have a property and you default on your loan payments then not only do you risk getting your credit rating ruined but you will also
Unsecured loans are very popular mean to raise finance among the people of the UK. If you take a glance to some early decades, you will find the picture about its great popularity. People are now very conscious about their assets and they seem to be unwilling in taking risks with their assets. It is a major point behind the fame of unsecured loans.
As there is no mandate of collateral, so there is no condition of equity evaluation of your assets. This factor plays a significant role to simplify the lengthy process. Let’s have a look on the advantages and disadvantages of unsecured loans.
Available to both homeowner and tenants
The first and foremost advantage of unsecured loan is that, it offers the opportunity of borrowing money to anyone whether the applicant is a homeowner or a tenant. So, you can borrow funds without putting up any security or collateral.
No risk to your home
It benefits to those who own a home and would not bear any risk with that. Unsecured loans are the solutions as these do not pose direct risks to your home or any other assets.
Since there is no formalities of collateral evaluation and usually the amount of unsecured loan is small, so the process of loan completion is much faster than that on secured loans. In some cases, if everything is okay, you may receive the money at the same date of being approved.
However, you must not forget the other side of a coin. Though unsecured loans come with some exclusive advantages, yet you must eye at some of its disadvantages too. Now let’s take a quick look on these factors
Higher Rates of Interests
It cannot be refuged that unsecured loans are backed by trust only so that there is a greater risk on the lender. The simple equation is, the higher the risk means the higher interest rate to pay. There is another factor with your credit record. The borrower having bad credit record will face higher rate of interest. If you have a decent credit rating, it will help you to get the loan in convenient terms.
Limited Loan Amounts
This is one of the major limitations of unsecured loans. If you need a large amount of money, the unsecured loan is not your solution because these are given in fewer amounts. Normally you can borrow only up to £25000.
Lack of Flexibility
If you take an unsecured loan, that means you have been bound in a circle. You have to pay off the amount with interest in installments at fixed time intervals. You will be unable to adjust a lower payment; on the other hand, if you pay back the loan earlier, you will be fined for early repayment.
So, unsecured loans have pros and cons. It will be better to take decisions analyzing your real situation.