Personal Loan Blog

Often in our search for finance options, we are led into a crossroad where we have to make a choice between secured and unsecured loans. Both are equally alluring and put the borrower in a difficult spot. It is difficult to make up the mind regarding one particular finance option because each has their share of advantages and disadvantages. What makes it more difficult to decide upon the finance option is that both secured and unsecured loans have a conflicting set of features, and the disadvantages of one are countered by the other.

Secured loans vs. Unsecured loans

Secured loans are the most conventional method of financing large sums of money. Even in older times people used to take loans to use in agriculture or other such needs by keeping their lands as security. Unsecured loans, on the other hand are of a recent origin. Since secured loans required the borrower to keep his home as collateral, many people who were without homes or who did not prefer attaching homes to obligations were left without finance. This also hampered the lending business of the lenders because the group was sizable. Thus, unsecured loans were launched as an alternative to the secured loans.

Misconceptions on Secured loans

There are many a myths doing rounds that have led to a sagging popularity of secured loans. People believe that by offering home as collateral they will have to move home until they repay the amount lent. People only transfer the ownership rights and not the right to live in the home. The lender can lay claim to the home only when the borrower does not repay the loan in full.

This will particularly interest the homeowners who do not take secured loans to protect their homes. Another important point that these people need to keep in mind is that they cannot escape the lender even on taking an unsecured loan. Though these loans are offered without any backing, the lender finds ways through which to recover the amount remaining on the unsecured loans.

This will shift a major part of the clientele for unsecured loans that comprises of the homeowners. However, unsecured loans continue to be the lifeline for the tenants. This is in spite of the fact that unsecured loans are more costly than the secured loans. The rate of interest charged from the unsecured loan customers is higher because of the larger risk involved.

Credit requirements

One often gets to hear about credit history in the financial circles. Credit history is a record of the conduct of an individual in terms of the credit behaviour. Any failure by an individual on any debts, loans, or mortgages is immediately recorded in the credit file. Though lenders prefer the borrower to have a good credit history, they do not attach a special importance to it if the borrower is offering collateral. Home can back the loan if the borrower refuses to. The backing however is absent in an unsecured loan. This is why lenders demand a good credit history when offering an unsecured loan. Lenders who accept to offer unsecured loans with bad credit try to compensate the risk with a still higher interest rate.

Terms differ with a secured loan

With a Secured loan, you can in fact enjoy more favourable terms than the unsecured loans. Apart from the low interest rate, there are many more features exclusively for the borrowers of secured loans. Some lenders allow the borrowers to extend the period of repayment of the secured loans as much as they desire. Typical repayment period extends between 5-30 years. Extending the term of repayment however, increases the interest that a borrower will have to pay. Borrowers can discuss with experts about the optimum term that will lessen the interest cost without increasing the burden on the monthly income.

Whatever be the option chosen, adequate consideration must be given to the conditions under which the option is to work. A particular finance option that did wonders to your friends finances, need not necessarily work in the same manner in your case. Instead of improving the situation, they sometimes back fire with serious consequences for the finances. Taking second opinion is always beneficial since it helps to test the validity of the advice offered by your lender.

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 uk finance world for any type of uk secured and unsecured loan please visit http://www.ukfinanceworld.co.uk

Author: Andrew Baker
Article Source: EzineArticles.com
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Unsecured loans are offered without any collateral. This implies that a borrower will not have to part with rights on home or any asset for availing the loan proceeds. There are two categories of people who use unsecured loans. Firstly, there are tenants and non-homeowners who use unsecured loans out of necessity. The second group is of homeowners who have lately joined the users of unsecured loans.

Homeowners traditionally were the customers of secured loans. Through secured loans, these borrowers were able to get hold of excellent deals, complete with a low rate of interest and easy repayment options. However, the apprehension regarding repossession of home was not to be shrouded under the attractive features. Though this has been accepted as no more than a myth, many of the regular customers of secured loans were dispersed as a result of this. These customers opted for unsecured loans.

Unsecured loan providers do not get a direct stake on any asset. Even if borrower fails to pay the loan amount in full, loan provider cannot undertake direct action to recover unpaid amount. Compare this to secured loans, and you find the lender misses no time to liquidate asset in his possession. One only gets a little extra time when using unsecured loans. Beyond that even unsecured loan providers are going to initiate legal proceedings to recover the amount. Therefore, unsecured loans must be taken as seriously as one would a secured loan.

Unsecured loans are advanced in the range of £1,000 to £25,000. The sum is relatively low in contrast with sum lent in secured loans. Therefore, unsecured loans are best used when the expenses involve lesser amount. Minor home improvements, footing holiday bills or debt consolidation form the most common uses of the unsecured loan proceeds. Unsecured loans are very adaptable to all kinds of personal purposes.

For raising unsecured loan, borrower must preferably have a good credit history. This loan is lent against personal credibility of borrower in the absence of collateral. A borrower with bad credit can face difficulty in qualifying through high street lenders. For brokers however, this is an easy task. A broker is a mediator between banks and borrowers. When broker approaches banks with the application of borrower, they get a better response. Banks know that brokers may have undertaken tests of credibility; therefore, they lend to the applicant.

When borrowing through unsecured loans, borrowers particularly feel the pinch on the clause of APR. APR or the rate of interest is generally higher in unsecured loans. The higher risk involved is to be blamed for the increased APR. Increased APR is inevitable and therefore reasonable. However, the premium over the reasonable APR that borrower have to shell is evitable. Borrowers can do two things in order to avoid paying unreasonable rates. Firstly, they must be up-to-date on the prevailing rates, lowest rates, rates according to credit circumstances and the different interest options in the UK. Secondly, borrower must accept the fact that it is not difficult to get good deals. Proper research is what is required to achieve these. Research nowadays is easier, thanks to the massive resources on the web. A person can view several loan providers’ products and gain important information about them; all for free and in a small span of time.

Nowadays, borrowers’ application is received through the online mode. Loan providers have thus made the process of raising cash convenient for borrowers. It has also been convenient for loan providers, as they do not have to directly deal with the customer traffic.

Unsecured loans have to be repaid between 5 to 25 years. Borrowers generally enjoy discretion on the method of repayment. The monthly or quarterly repayment method scores over other methods in the sense that the loan is successfully repaid and borrower is not over-burdened.

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

Author: Andrew Baker
Article Source: EzineArticles.com
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