An unsecured loan is a loan that is not secured against any asset and is simply based on contract and trust. These loans are available from a wide variety of lenders, from high street banks to Internet only lenders. Unsecured loans are available to both homeowners and non-homeowners, unlike secured loans, which are only available to homeowners. However, in order to qualify for an unsecured loan you do need to have good credit, as the unsecured nature of these loans makes them too high a risk for most lenders to consider someone with a history of repayment problems.
There are both pros and cons to consider when you are looking at taking out an unsecured loan, and in order to determine whether this is the right loan choice for you it is important to weigh up the pros and cons in order to make a more informed decision.
The pros
- Unsecured loans are available to those that do not own their own homes, so it is not necessary to be a homeowner in order to benefit from one of these loans
- Unsecured loans are available from a wide range of lenders, including online lenders and high street banks, so there is plenty of choice available.
- Depending on your income and circumstances you can usually borrow up to £25,000 with an unsecured loan.
- Repayment periods of up to five, seven, or even ten years in some cases are available on unsecured loans.
- You are not risking any asset in the event that you default on repayments when you take out an unsecured loan.
The cons
- The borrowing levels with unsecured loans are much lower than with secured loans, so they may not be suitable if you need to borrow large sums of money. You can usually borrow up to £25,000 depending on your income and circumstances.
- The repayment periods on unsecured loans are much shorter than with secured loans, so your monthly repayments are likely to be higher. This is because you will have to spread your loan over a shorter period.
- You need to have good credit in order to be eligible for an unsecured loan - those with poor credit will find it difficult or impossible to get one of these loans. Those that are able to get an unsecured loan with bad credit will pay very high rates of interest.
- Interest rates on unsecured loans have been rising over recent months, and you may find that there are fewer competitive deals on the market because lenders are becoming more wary about the risks involved with loans.
Loans4 provide Homeowner loans for UK homeowners.
Tags: cons, loans, loans4, pros, unsecured loans
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