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.
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