Unsecured Personal Loans - Explaining the 'Why' Behind its Popularity
Written by: Andrew Baker
Personal loans through banks and financial institutions have
been a constant source of funds for most borrowers in the UK.
Limited funds and an unlimited number of expenses have always
forced individuals to use personal loans. Unsecured personal
loans, a version of personal loans, has been very popular among
tenants and homeless people. Of late, homeowners too started
showing an interest in unsecured personal loans. Reason: the
loan provider cannot claim a direct charge on any asset,
The absence of collateral in an unsecured personal loan doesn't
allow loan provider a direct charge on any asset. In the event
of bankruptcy, unsecured loan providers are the last to be
disbursed. When the proceeds of liquidation are not enough to
suffice every creditor, unsecured creditors are the ones who
This clearly demonstrates the relatively higher risk that Unsecure
d Personal loans providers have to face. The stark
differences in terms between the two kinds of personal loans are
thus justified. This serves as a food for thought for many
borrowers who would otherwise complain of inflated terms on
unsecured personal loans.
Risk plays an important role in gaining the trust of loan
providers. Risk is defined as the potential harm that may arise
from some event taking place in the present or in the future.
Having no collateral to back repayments on increase the risk
The worst affected through the increase in risk is interest
rate. Interest rate rises manifold in an unsecured personal
loan. While on most occasions the increase is justified, lenders
will not miss the opportunity to make some extra pounds. This is
done by adding a few percentage points to an already inflated
interest rate. Most borrowers will accept this as the norm.
Others, who conduct proper search before consenting to the loan,
will question the increased interest rate.
Comparison of interest rate using loan calculator is till today
the best method to avoid loan providers overcharging in terms of
interest. Loan calculator illustrates the rates of interest
being charged by several prominent banks and financial
institutions. The interest rate chargeable on separate
categories of loans is also listed in the loan calculator. A
borrower planning to have unsecured personal loan will first go
to the relevant loan category; in this case the category is
unsecured personal loan. A look through the category will reveal
the least rates. If the rate being offered to you is higher,
then shifting loan providers will be the solution. Allowing the
loan provider a justification for the increased rates will be
necessary. Sometimes because of bad credit history, the rate of
interest or APR has to be further increased.
A benefit that unsecured personal loans enjoy over secured
personal loans is the promptness of approval. Valuation of
property or asset will not be required as in secured loans. A
large chunk of time employed for these valuations is saved in
this process. Consequently, unsecured personal loans will be
preferred on the scales of faster availability.
Not many lenders would be prepared to offer large sums of money
through unsecured personal loans. The amount desired will be
slivered off. Unsecured personal loans cannot be used for
purposes where the amount of finance required is very large.
The faith enjoyed by a borrower in banks and his personal credit
report has a very important role to play in improving his case
for unsecured personal loan. Some loan providers immediately
reject those with bad credit history. Some others, who are
considerate to the problems of bad credit borrowers, offer
unsecured personal loans, but with caution. The loan amount
rendered is small. Lending policies may however be made less
stringent for the borrowers with bad credit. The increasing
number of cases of bad credit is improving acceptance of bad
credit as a regular phenomena.
The increasing preference of homeowners as well as homeless, for
unsecured personal loans sees no decline. The desire to see ones
home safe has inspired many people to change loyalties from
secured personal loans to an unsecured personal loan. With the
trend continuing, days are not far when unsecured personal loans
will become as lucrative as secured loans.
About the author:
Andrew baker has done his masters in finance from CPIT.He is
engaged in providing free,professional,and independent advice to
the residents of the UK.He works for the Secured loan web site
loans fiesta for any type of loans in uk,secured loans,unsecured
loans,debt consolidation loans please visit http://www.loansfiesta.co.uk<
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