If you are in desperate need of money, then you may find yourself considering a loan.
There are lots of different types of loans out there, and an option out there for anyone who finds themselves needing cash.
But, before you even consider getting a loan, it is incredibly important that you do your research to ensure that you know what you are getting yourself into.
One of the most common types of loans that people may consider is an unsecured loan. Unsecured loans are also sometimes known as personal loans, and they are commonly used by individuals who need cash.
But what is an unsecured loan? Well that’s a very good question.
Here at Sunny Loans UK, we strive to tell you all that you need to know about loans to ensure that you make educated decisions, with the knowledge of how these affect your finances.
So, if you want to find out more about unsecured loans, keep on reading!
What is an Unsecured Loan?
Let’s kick this off by taking a look at exactly what an unsecured loan is. Well, as we have already said, an unsecured loan is a type of personal loan, and it is actually one of the most common types of loan out there.
There are many different types of loans included under the umbrella of unsecured loans, and that is because an unsecured loan is simply a loan that isn’t secured against something.
For some loans, you will be required to put up collateral which will come in the form of an asset.
This asset could be a cash deposit, but is more likely to be property, such as your house. This asset acts as security on the loan, and reduces the risk to the lender of lending you the money.
That is because, if you fail to make your repayments, then the lender can easily cease your asset to cover their loss.
Unsecured loans are generally fairly straightforward to obtain. Especially if you have a good credit history.
Unsecured loans are usually obtainable for most people, and they are often the first option that you will consider when looking for a loan.
But before you do, let’s take a look at the difference between an unsecured loan and a secured loan.
How Are Unsecured and Secured Loans Different?
If you are thinking about applying for an unsecured loan, you may first want to know what the difference is between an unsecured and a secured loan.
There are quite a few differences between these two types of loans, but the biggest difference is collateral.
As we have established, for unsecured loans, you are not required to provide security. This means that you do not need to sign over an asset, or put the value of the loan against an asset.
Instead, you can simply borrow the money independently of your existing assets. In contrast, with a secured loan, you will be required to supply an asset for safety.
Due to this, there are different circumstances where an unsecured loan might be better for you than a secured loan, and vice versa.
For example, unsecured loans can be a little trickier to obtain if you are somebody who has a bad credit history.
This is because a lot of reputable lenders will only lend to somebody who they believe will repay the money.
Likewise, if you haven’t got an asset to use as security, then a secured loan may not be possible for you. So, you may need to consider an unsecured loan.
In a lot of ways, these loans are the opposite of each other, which is why you should always do your research to discover which is best for you before you apply.
Things to Consider Before Getting a Loan
It is important to note that applying for a loan isn’t something that you should simply rush into.
Applying for a loan is a big decision and one that shouldn’t be taken lightly. So, before you apply for a loan, here are some things that you should consider.
When you apply for a loan, then your affordability will be assessed by the bank/lender.
They will look at your ability to make repayments, and how much you will be able to repay each month.
This figure will impact whether, or not, they are willing to extend you the money that you have requested to borrow.
So, before you apply for a loan, consider whether, or not, you will be able to afford the repayments.
Before a lender accepts your loan application, they will take a look at your credit score and credit history.
This will be a reflection of your experience with credit, and whether, or not, you are creditworthy. If you have a good credit score, then you shouldn’t have any issues when it comes to applying for loans.
But, if you have a bad credit history, then you may find yourself ineligible for an unsecured loan.
Finally, you need to consider the APR of your loan, and whether, or not, you will be able to afford it.
APR stands for annual percentage rate, and it is the rate charged on the money that you have borrowed in return for allowing you to borrow the money.
Generally, the APR will be affected by market value, but the lower the APR, the better for you as it will increase the chances of you being able to repay the money.
Pros and Cons
Finally, let’s wrap this up by taking a look at an overview of the pros and cons of an unsecured loan.
- No Assets Required
- Faster Application Process
- Wider Range of Loans Available
- Higher Interest Rates
- Lower Borrowing Limits
- Harder to Qualify
In short, an unsecured loan is a loan extended to the borrower by a bank/lender without the requirement for collateral or security.
So, you can apply for an unsecured loan without having to use an asset as safety.
But, before you apply for an unsecured loan, do your research to determine if this is the right option for you.
Thank you for reading!