Personal loans in reality are an overpriced product packaged as the “best bet" when funds are running low. The first USP that the banks and other financial institutions never fail to highlight is the so called absence of collateral. In other words, borrowers apparently do not have to face the threat of repossession of property as there is no asset involved. But, if the loan seeker fails to repay the loan amount on time or if there are repeated missed payments, the lender through an injunction from the court can alter the loan type to a secured deal.
That is, the earlier loan will be converted into a secured loan and your home might be repossessed in event of failure to pay the due amount on time. In case you don’t have any asset, the court may order your employer to deduct a certain amount from your monthly salary and put it directly in the lenders account.
In fact, taking a loan against collateral might actually be a good thing. At least it will reduce the interest rate. The interest rate associated with unsecured personal loans is truly atrocious. The official reason behind this is the so called “risk factor" that the lenders undertake in providing this type of loan. The typical APR rate is generally around 19.9%. But, in most cases, the APR (annual percentage rate) can range from 7.9% to 41%.
Lenders usually don’t have too many loan plans for unsecured personal loan deals. Unsecured personal loans do not offer any flexible repayment terms or interest plans. Its terms and conditions are quite stringent. Borrowers are hardly given any options to choose any particular repayment schemes.
The only thing that works in favour of unsecured personal loans is its quick processing time. If the lender is satisfied with your credit score, then the final documentation hardly takes any time. In fact, the loan can be sanctioned within 2-3 days of applying for the loan.
Personal loans can solve one’s financial needs with ease. The borrower has the flexibility to utilise the loan amount for any purpose, which the lender is not bothered about. Almost every financial institution provides personal loans, and the process involved to clear the loan is smooth. While there are unlimited lenders providing personal loan, it’s the duty of borrower to figure out the different loan deals, and choose the deal which suits his monetary circumstance.
Personal loans need simple documents for processing:
Proof of residence
Age proof
Borrower's credit records
Income and salary proofs
Number of dependents
Personal loans are secured and unsecured in nature. Loans which need a guarantee are in the category of secured loans. The amount and the duration of the loan are decided by the lender after evaluating the value of the property. Taking secured personal loans is a serious business as the risk of property is involved in this case. The factors that add to the popularity of this type of loan are:
Loan amount up to £250,000
Choice of interest rates
Longer repayment period
People looking for a huge amount can opt for secured personal loans.
On the other hand unsecured personal loans don't require any collateral. As no security is provided to the lender, the borrower ends up paying a huge interest rate on the loan amount. The duration of repayment is up to 10 years, which in case of secured loans stretches up to 25 years. The amount the person can borrow is between £5000 to £25,000. However, the risk factor for the borrowers is minimal as no guarantee is provided to the lender.
Personal loans are easily available. However, choosing the right loan is an issue. Borrowers should be aware of their monetary standing; one should borrow the loan amount one is comfortable in repaying on time.
Gracy Bonsu has sinced written about articles on various topics from Jewelry, Bad Credit Loans and Unsecured Personal Loans. The author is a business writer specializing in finance and credit products and has written authoritative articles on the finance industry. She has done her masters in Business Administration and is currently assisting Loans-Bazaar as a finance specialist. Gracy Bonsu's top article generates over 74000 views. to your Favourites.