When a consumer seeks a loan they may opt for either a secured loan or an unsecured loan. The difference is that to access a secured loan a borrower will need to offer an asset (collateral) to act as a security. If the borrower fails to repay a secured loan this asset will be seized by the lender, then sold on to recover the debt, thus the risk taken on by the lender is minimal.
A secured or an unsecured loan will fulfill the same basic requirement. That is to provide immediate disposable finance. This money may be used to pay for education; home improvements; a car; a wedding; debt consolidation and so on.
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Often, a consumer will not have an asset of enough value to access a secured loan; or may prefer not to involve an asset. In such a case a consumer may opt for an unsecured loan. An unsecured loan incurs greater risk for the lender - if repayments are not met, the lender will have to take legal proceedings to pursue recovery of the debt. For this reason, the interest rate on repayments will be higher with an unsecured loan than with a secured loan. The maximum repayment term for an unsecured loan is shorter than with a secured loan. The term will typically range from a few months up to 10 years.
Repayment on an unsecured loan will be fixed, thus will not increase or decrease in line with interest rates. These repayments are typically made in monthly installments. However, it may be possible to repay the loan before the agreed term, thus, reducing the total interest paid. In the case that a borrower fails to repay an unsecured loan, a lender may take legal proceedings. This can result in damages and even the confiscation of a borrower's assets. Thus, even with an unsecured loan the borrower's assets are not guaranteed to be safe.
Less can be borrowed with an unsecured loan than with a secured loan. The value of an unsecured loan will typically range from £500 up to £25,000 and will depend on the income and requirements of a borrower. The amount borrowed will have an affect on the interest rate of the unsecured loan. If the value of an unsecured loan is less than £15,000 an interest rate as low as 6.25 % may be granted. The rate of interest on an unsecured loan will increase in line with the sum borrowed.
Furthermore, a consumer's credit history is crucial in determining the interest rate on repayments; the amount that can be borrowed; and the term of the loan. A borrower with a good credit score will benefit from the best deal - interest rates will be lower and more money can be borrowed. However, a consumer with a bad credit history can still access an unsecured loan. A 'bad credit unsecured loan' is tailored to suit such borrowers. The disadvantage of a 'bad credit unsecured loan' is that interest rates on borrowing are increased to balance out the increased risk to the lender. It is worth noting that the interest rate with a bad credit secured loan is not affected in the same way. This is due to the lender having a secured asset to outweigh the increased risk.
A good source of unsecured loan providers can be found and compared on the Internet. An applicant will typically need to provide proof of income (with a loan value of over £10,000 this will be essential) identification and be aged between 21 and 80 years. Once a suitable unsecured loan has been approved, it is possible for the borrowed funds to be available with 72 hours.
To conclude, an unsecured loan is an easily accessible means by which to increase a consumer's present available finance. However, a secured loan, with its lower interest rates and more flexible terms should not be ruled out. The most appropriate loan for a consumer will depend on their individual circumstances.
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