The Best Unsecured Loans - Best-Loans.org

There will come a time in your life when you are faced with the decision about whether to borrow money. You may be a student needing some funds to complete your degree, you may want to renovate your home or even consolidate your debts.

There are a number of different loans available from banks/financial institutions. One of these loans is an unsecured loan. This loan is normally used by individuals who do not own their own property e.g. tenants, although it can be used by people who do own their home. The credit rating or financial position of the applicant is such that no security for the loan is required.

These loans can be used for any purpose; they can be of an agreed amount over an agreed number of months/years. As with all loans interest rates vary with different companies and over various amounts of money loaned. For example the interest rates are normally lower for the larger amount of money that you loan. At the moment the normal interest rate is around 10.9% for loan amounts up to around £10000, whereas loans over this amount have a fixed interest rate of about 5.8%.

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There are many benefits of having an unsecured loan. These include the fact that they are normally processed more quickly than a secured loan. You will receive a reply from the lender almost instantly and there will be no risk or obligation from you even after you have sent the forms and the individual borrowing the money is of no risk as their home is not held as collateral. However, if you do not keep up your loan repayments, the lender could issue court proceedings against you which in turn could result in the loss of you home if you have one.

Alongside these benefits, as with other loans there are disadvantages. An unsecured loan usually has higher interest rates than any other loans. This is due to the fact that there is no security on the loan (for example a house is not used as collateral). Because there is nothing supporting the loan, unsecured loans tend to be smaller and have higher interest rates than secured loans. This is to protect the lender as they have no collateral to support the loan.

Another bad point is that these loans require a credit history check, therefore normally requiring you to have a credit listing. If you have a bad credit score, you may not be eligible for the loan. It is therefore, essential that you have a good credit rating. Due to the fact that you are not providing your property as collateral, loan companies will need to see that you are able to repay your debts. The credit rating is generally based on your employment history (you are more eligible for a loan if you have been in constant employment over a long period of time), existing debts (if you have a lot of debts, you may not be able to repay the monthly premiums), length of time taken to pay bills and whether paying the debt in full or only the minimum payment (e.g. credit card payments).

If you are young and do not have a credit history, you may find it difficult to borrow money. For example if you are a 19-year-old looking to purchase a loan to buy a car. While the loan might be secured over the car, many lenders may still be reluctant to give you funds because they don't know how disciplined you will be with your repayments. In this situation you may be asked to find a guarantor. A guarantor guarantees a loan by agreeing to be responsible for the repayments should the borrower default. Parents are often asked to go guarantor for their children’s loan. Ideally guarantors should make sure the guarantee is limited to a set amount and a specific time period and they should always get independent advice.

An additional check to be aware of with credit scoring is the check on the property address where you are living. If for example, you rent a property, the check would be made on that address not just on your name, therefore if a previous tenant had a bad credit rating this would reflect on your rating.

The main reason why an individual would apply for an Unsecured loan rather than a secured loan if they own their own property is due to the amount to be borrowed being of a small amount. This would be the normal loan to apply for rather than a secured loan as it is less risky to the individual.