A latest survey indicates that the UK people are amongst the biggest borrowers in the world. They are availing loans for all sorts of reasons – house purchase or improvement, business set-up or expansion, vacation or holiday season expenses, education goals, wedding expenses, car purchase, bad credit revival, debt consolidation and many more.
Typically, every lender favours a secured loan application, as presence of collateral condition guarantees repayment. However, pledging collateral is neither always required nor always possible. So, what are the options for people who are unwilling or unable to offer collateral? Before committing to any loan deal, it is always advisable to compare loans before coming to a final decision.
Unsecured loans - the most talked about loans in the UK loan market. As the name suggests, these loans can be availed without pledging collateral, i.e., the loan amount is sanctioned without any security. This prime attribute or significant feature makes unsecured loans ideal for people:
- Who have nothing valuable to pledge as collateral, i.e., tenants
- Who are hesitant to risk their valuables, i.e., homeowners or property owners
- Who are living with their parents, i.e., students and others
- Who have small monetary requirements, i.e., offering security is not required
- Who cannot afford to get into lengthy evaluation procedures, i.e., critical needs
Fast loan approval process is the second most attractive attribute of unsecured loans. When collateral is a part of a loan deal, the approval process always begins with property valuation procedure. However, in the absence of it, approval depends on the loan seekers recent fiscal consistency only.
Over the past decade, these loans have become an integral part of our lives and almost everyone is taking these loans on a daily basis. Besides, formally applied loans, they are also availed in the form of overdrafts and payment cards - credit cards, charge cards, store cards.
Non-existence of collateral requisite means no immediate risks, i.e., in the event of repeated defaults or non-payment, the lender cannot take over the borrower’s valuables and has to approach the County Court for a settlement.
However, no loan type comes without its own set of shortcomings. In an unsecured loan deal, the stakes are typically high for the lender. Hence:
- The loan amount that one can borrow is usually small
- The APR is usually high
- The payback terms are usually fixed
- The loan clauses are usually non-negotiable
As no loan comes without a catch, loan seekers must always compare loans before applying.
By: Eric Hector