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Unsecured Loans – Substituting Secured Loans
By: Andrew Baker
Watching more and more people fall in the trap laid down by the secured loans,
you resolved never to take debt help from the lending organisations.
Nevertheless, as and when need arises, the lending organisations do have to be
approached for help. With the many changes that have taken place in the lending
scenario in the UK, you do not have secured loans as the only option available.
Unsecured loans have made their mark as loans that are easily available from
lenders at attractive rates and flexible terms.
With more and more people losing their homes to the lending organisations, the
aversion to secured loans has grown. Unsecured loans have gained from this
aversion to secured loans. These loans provide resources to the borrowers
without requiring them to offer their homes as collateral. This frees up the
equity in home to be used for other purposes.
The high rate of interest that is charged on these loans is admissible. By
offering loans to people without any security, lenders are putting their funds
to risk. The higher rate counter-weighs the higher degree of risk involved.
Lenders however, make their assurances regarding the credit behaviour of the
borrower through the borrower’s bank, and other organisations with which the
borrower deals.
A good credit history is a prerequisite for unsecured loans. A bad remark on the
credit file may dither many lenders in the UK from offering loans to such
borrowers. Lenders undertake credit scoring to be on the safer side. Credit
scoring is the method through which lenders assess the credit worthiness of a
borrower. The borrower is asked to answer a few questions in the application
form. The answers to these questions form the basis of the points that are
allotted to a borrower. If the mark obtained by a person is above the set mark,
he is accepted for being offered unsecured loans.
If he fails to cross the mark, he may either not be offered the loan or may have
to shell a higher amount in the form of interest. The borrower may not get the
desired amount and have to make do with the smaller amount. However, this does
not give a generalised view of all the lenders. Each lender follows a different
method of credit scoring. Thus, failure to qualify with one lender does not mean
an end to the loan hunt. There may be other lenders who are ready to supple
their terms to include the borrower.
Tenants and other homeless people constitute a major group of borrowers of
unsecured loans in the UK. However, they are not as fortunate as their
counterparts with homes. While tenants have to choose unsecured loans as the
only option available, those with homes turn down secured loan offers in order
to save their homes. Tenants may however have to be disappointed with some
lenders since they make it necessary for the borrower to have a house, even
though it is not accounted for the collateral purposes.
Unsecured loans are made available to people who are on income supports. Income
support is an income related benefit normally available to people above 60 years
of age. These are allowed to people who do not have enough income to meet their
basic needs, or whose savings ranges from £8000 to £12000. Unsecured loans can
be used by these people for a variety of purposes. The amount received through
income supports will be used to repay the monthly instalments.
Unsecured loans are like regular loans in the other aspects. The process starts
with the borrower requesting help through the application. The mode of
application may be different for different people. Online applications rule the
roost, with majority of the customers choosing the online method. Next comes the
telephonic applications. However, the absence of any written record makes them
less popular. Lastly, borrowers may choose to personally visit the lender and
make the application. This has become tedious now because of the number of
lenders in the UK increasing appreciably.
Work on the application starts immediately. Lenders search for the various
offers available with them and with partner lenders. The lender offering a
faster approval is more preferred. Unsecured loans are customarily approved
faster than the secured loans. Most of the time that is taken in approving the
secured loans goes in valuing the property. Since no collateral is required,
there is no need for property valuation. Thus, unsecured loans are made
available to borrowers promptly.
Unsecured loans have gradually made a place as a source of finance. Lenders, no
longer consider unsecured loan borrowers with distaste. Lucrative deals are
offered to people going for unsecured loans. They are now being used in all
areas that earlier secured loans used to cater. Debt settlement, real estate
purchase, and car purchase are some of the uses that borrowers put the loan
amount to. Thus, unsecured loans have proved a better alternative to the 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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