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Why Choose An Unsecured Loan?
By: John Mussi
Why choose an unsecured loan? An unsecured loan can be used for almost anything
- a relaxing holiday, a new car, a wedding, debt consolidation or home
improvements. These are just some of the reasons why people choose an unsecured
loan.
If you want to raise money for most purposes but do not want to offer your home
as security then an unsecured loan could be the solution.
For an unsecured loan the amount and period you can borrow varies. Lenders offer
loans even as small as £500 and can go up to £25,000. The repayment period can
be anywhere between six months to ten years.
Unsecured loans are offered by banks, building societies and also by the larger
supermarkets chains.
Whatever you need it for there are a few things to consider before applying for
an unsecured loan.
With an unsecured loan, the lender has no claim on any particular asset.
Unsecured lending is generally more risky than secured lending, which is
reflected in the relative rates of interest.
An unsecured loan is actually a loan where the lender has no claim on a
homeowner's property in case the person fails to repay. The lender is solely
relying on the ability of the borrower to meet their loan borrowing repayments.
With an unsecured loan, you're not borrowing against the value of your house.
You will usually be offered an interest rate based on your circumstances and the
amount you want to borrow. This means that the 'typical' interest advertised
might not be the rate you are offered - your rate will depend on your credit
rating.
If the borrower defaults on an unsecured loan the lender cannot repossess the
goods, but has to resort to other legal remedies to recover the capital,
interest and costs.
You should usually borrow as little as possible, and draw up a budget plan to
determine how much you need. An unsecured loan might not offer a particularly
high amount, so if you're a homeowner and need to borrow more, you could look
into secured loans.
Unsecured loans are invariably more expensive than secured loans because the
lenders 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 and pursue the borrower 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.
Check whether there is an early repayment penalty.
About the Author:
John Mussi is the founder of Direct Online Loans who help UK homeowners find the
best available loans via the
www.directonlineloans.co.uk website .
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