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A short guide to unsecured loans in the UK
Want to take out a loan that will provide you with the funding that you are looking for without the need to offer any form of security whatsoever? A loan that is easier to pay back with a payment term that is tailored to your present needs and circumstances? Or a loan that can be used for any legal purpose whether it’s for covering the costs of your wedding, purchasing a new car or computer, or even taking a trip around the world? If you are, then unsecured loans are financial products that you can consider.
But what are unsecured loans anyway and how are they different from secured forms of funding? Below, you will know what the loans are, including how they work, some of their ideal uses, and the things that you need to consider so you can become qualified.
Unsecured Loans in the UK
Unsecured loans are financial products that do not require borrowers to offer some form of asset as collateral to the money that is borrowed. What will be required from borrowers however, are usually a strong credit rating and a reliable income level that is enough to afford the loan and its repayments. This is because there is no security that the lenders can turn to in case the borrower defaults from his or her loan which is why having a positive credit history and affordability is essential.
With unsecured loans you will only be pledging your reputation to the credit agreement. You are legally obliged to pay back the loan according to the agreed terms and conditions but won’t lose any tangible asset if you can’t fulfil them.
How unsecured Loans work
Unsecured loans allow you to secure considerable amounts of credit anywhere from £1,000 to as much as £25,000 without providing any form of security to the lender. The amount of credit that you can borrow will depend on the kind of option that you choose and the lender providing it as well. Your affordability and income level will also play an important role on the amount that you can qualify for.
The payment terms of unsecured loans will also vary from lender to lender and on the option that you choose. Your current financial circumstances will also come into play. The repayments can be spread in a long period of time for a number of years but mostly it’s tailored to your present monthly earnings and outgoings. This is because lenders will always make sure that the monthly payments are ideal to your budget so it would be more likely for you to stick to your repayments.
In general, unsecured loans are lot riskier to the lender as there is no security involved in the loan agreement. This doesn’t mean however, that there are no penalties and consequences that you will bear if you don’t pay back the money that you owe. Missed payments and defaults can seriously tarnish your credit history and this in return will hinder you from obtaining loans in the future.
Why unsecured loans are ideal financing options
Generally speaking, unsecured loans have higher interest rates than secured forms of loans. This is because the loan agreement is riskier than if it were tied to collateral and lenders will put higher rates in exchange for the risk that they are willing to take.
Nevertheless, the types of loans can be a reliable means of funding to cater an array of different vital costs and expenses such as:
- Making minor purchases like gadgets and electronic appliances
- Covering medical bills and other important payments
- Consolidating costly debts like store cards and cash advances
- Financing home improvements and repairs
- Addressing different emergency costs and expenses
Because there is no security in the part of the lender, they will make sure that the borrower they will approve will be credit worthy or in simple words, less risky. Some of the factors that will determine your creditworthiness include:
- Having a solid credit rating
- A resident of the same area for an extended period of time
- Have a stable job or enjoying a reliable source of income if you are self-employed or unemployed
- A repeat borrower
Types of Unsecured Loans in the UK
There numerous types of unsecured loans in the UK that you can consider to satisfy different financing needs and purposes such as:
- Credit cards – These are popular forms of unsecured loans in the UK. They are easy to use and provide convenient funding to different qualified borrowers.
- Student loans- The loans can either be granted by the Government of by private institutions but mostly they are used to cover the costs of schooling, particularly for a college or University.
- Personal Loans – The unsecured loans are multipurpose loans which means you can use them for any purpose as long as they are legal. There are numerous kinds of lenders that can provide the financial products from traditional lenders like banks and credit unions to alternative loan providers like online lenders.
Other ways to secure unsecured loans
Creditworthiness is an important aspect in getting approved for unsecured loans. This means that you will need to have a particularly strong credit rating and income level so your application for an unsecured loan will become accepted.
If your credit rating and income level is not that good, you can still obtain unsecured loans through these two options:
- Offer a guarantor – Providing a guarantor to your unsecured loan agreement can help you obtain an approval decision from your lender even if you are not deemed credit worthy. However, this can put your guarantor in a tough situation and if the person is someone that is close to you, like a family member or best friend, then there is a real risk that you will damage such a relationship. This is because the guarantor is completely responsible to cover the loan and its repayments in the event that you default from them.
- Take out a lesser amount – You can also try taking out a lesser amount as it would be less risky in the part of the lender since the money that you owe is not large and it would also be something that is easier for you to pay back.
You can also try exploring secured loans if you don’t have that strong credit rating and income level that unsecured loans require. Just bear in mind however, that you could risk losing that asset that you offer as collateral in a secured loan agreement and this is something that you need to consider heavily before you apply.
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Representative Example: £160 loan for 15 days at a fixed interest rate of 290% pa. Total amount payable is £179.07 in one single repayment. This is based on the amount of credit plus interest, no other fees apply. Representative APR 1449%
Employees are the drivers of the global economy. They comprise a large percentage of the workforce, and the world will stop without them. If you’re going to analyze deeply, you’ll realize that all of us are employees. We are working for someone else – be it a boss, an organization, or a contractor. Employees are good demographic points because they tend to experience financial troubles more often. It could be that employees are also parents, or they need quick cash to survive until the next payday. In fact, the borrowing habits of employees empowered payday loans (that’s why they called ‘payday’). Employee-centric payday loans don’t have much difference from the cash advance programs of the past, though some lenders have made adjustments. Employee payday loans probably have a smaller interest rate stretched over a manageable repayment period. Lenders can also work hand in hand with employers to increase awareness for employees.
Freelancers on A Budget
The global freelancing community is starting to gain important traction this 2017. In fact, thousands of people are now resorting to freelancing because of the awaiting opportunities in the market. Freelancers are like hunters – they’re actively chasing big game, occasionally hitting and, oftentimes, failing. New payday lenders have understood the need for freelancer-specific loans, though only a few of them are following suit. Perhaps freelancing still needs to be recognized as a tangible income source in the payday lending arena. Another angle is the way people are tagging themselves as ‘freelancers’ even though they don’t have any jobs or income sources. This is why some lenders will look for additional income proofs whenever they encounter freelancers applying for payday loans. Nevertheless, we’re going to see lots of payday loans geared towards freelancers on a budget this year.
Being an entrepreneur today is no longer a side path – it’s necessary for the betterment of your life someday. Once you have a winning idea and transformed it into a plan, you can focus on acquiring capital. If your startup business is not that big, you can settle for a payday loan. Payday lenders can release your money in just minutes. They won’t care about your credit rating or the nature of your business (somehow). What they want to know is if you’re capable of repaying the loan within the agreed time frame. Once you got your payday loan, your business operation can be ignited and you’ll start raking profits in no time. Just remember to allow some of those profits towards your loan repayment. An unpaid payday loan can bring too much stress.
You may think that big-time investors are going after large, bank-issued loans. Well, you’re right. A stock investor, for example, needs big loans if he wants to participate in a growing market. The same can be said for antique collectors and coin enthusiasts. However, we can’t deny the fact that investors also start small. In this sense, small-time investors can use payday loans to fund their investments. Whether they make a killing or not, investors can see potential attention from new payday lending companies.
Once you understand all of these demographic points, you’ll know how lenders are adjusting their operations strategically. At one point, they may pursue better marketing efforts while compromising other areas. Despite this, it’s still important to find a lender that attains a great form of balance among all of these demographic areas.
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