Unsecured personal loans are viable funding options for borrowers who do not want to place any security against it. They are available for specific purposes and the repayment terms and conditions are mostly fixed by the lender. The loan amount is largely dependent upon the credit history and debt to income ratio of the borrower. Some of the purposes for which this loan can be used are paying medical or educational bills, meeting wedding expenses, enjoying holiday trip, consolidating smaller debts or making home improvements.
In an unsecured personal loan, the borrower is completely free from any risk as the loan is not approved against his property. The absence of security makes it a relatively hazardous investment for the lender. Before approving the loan application, the lender would want to make sure that the borrower has a regular income or has a repayment capacity befitting the sum taken. He does this to ensure safe and timely repayment of the loan amount. At the same time, he charges a higher interest rate for this loan (as compared to a secured loan) to cover the risk he undertakes. This makes it difficult to get cheap unsecured personal loans.
Universally, to get approval for an unsecured personal loan application, one needs to have an impressive credit history together with a strong repayment capacity. But, over the years, the concept of globalisation and consumerism has influenced the credit market also. According to the principles of target marketing, lenders devise various loan plans to reach the highest number of borrowers. Thus, bad credit record holders also get an easy acceptance in the loan market. However, they are charged higher interest rates and landed with very strict repayment terms.
The borrowing limit for an unsecured personal loan is comparatively less than secured loans. Similarly, the repayment term also differs. The borrower is provided with a smaller tenure to pay off the loan. The loan amount starts from £500 and sometimes reaches up to £25,000. The repayment term may vary from 6 months to 10 years. In some cases, loan seekers may be allowed to prematurely pay off the loan sum before the end of the loan cycle without being charged a high penalty rate.
By: Garry Hudson