An unsecured loan is a personal loan, where the lender cannot
lay claim on any of the borrower's belongings, in case they fail
to repay. Instead, the lender is relying solely on the ability
of a borrower to meet their loan borrowing repayments. Usually,
the lender has build a relationship of trust with the borrower.
Either through previous loans or through credit history and
personal financial situation of the borrower.
Because you are not securing the money you are borrowing,
lenders tend to limit the value of unsecured loans compared
loans with security. The repayment period is shorter, compared
to secure loans, and will, normally, range from anywhere between
six months and ten years. Unsecured loans are offered by
traditional financial institutions like building societies and
banks, but also recently by the larger supermarkets chains.
An unsecured loan can be used for almost anything - a luxury
holiday, a new car, a wedding, or home improvements.
An unsecured loan is good for people who are not homeowners and
cannot use their property to obtain a secured loan; e.g. a
tenant living in rented accommodation. There are a few things to
consider before applying for an unsecured loan: Unsecured loans
are invariably more expensive than secured loans, and the
repayment periods demanded by lenders are shorter too. This is
because they have no guarantee that you can repay the loan, and
therefore charge you more in interest to cover the cost of
insurance policies that they need to take out to protect them
should you default on repayments. In the event that a borrower
does not pay up, the lender will invoke the terms of the
legally-binding credit agreement. His only way to claim the
money is through the legal system.
Lenders are obliged by law to tell you how much they charge for
this type of finance and this is worked out as an annual
percentage rate (APR). Ask whether the APR figure quoted is
'typical' or is what every applicant is charged. You should also
investigate whether the interest rate charged is fixed for the
lifetime of the loan repayment period, or whether it varies with
the base rate. Check too on whether there are early repayment
penalties.
Unsecured loans vary from lender to lender, so it pays to shop
around before making a final decision.
About the author:
Karin Boode is the founder of the Loan Info Center, who strives
to provide valuable information regarding any type of loan via
the http://www.loan-infocenter.com website.
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