A tenant loan is basically an unsecured loan that funds the loan requirements of non homeowners. It is very similar to an unsecured personal loan. It comes with a high interest rate as the lender is not provided with any security or collateral. Unlike a homeowner loan a tenant loan is typically for a smaller amount and has larger periodic installments. The loan repayment period is also short. A tenant loan can be availed from banks, building societies or financial institutions. The amount that can be borrowed ranges from £1,000 - £50,000 over a period of 1 -25 years.
Since there is no security from the borrower, borrower's credit history and income proof play the deciding role in the loan approval process.
Who should use it?
Tenant loans are useful for people who are not homeowners that is they are tenants, students, paying guests etc. As a loan option tenant loans are good for people who are financially sound enough to make timely repayments but don't own a property.
What are its advantages and disadvantages?
Advantages:
Since the borrower is not offering any collateral to the lender there is no risk of losing any property or asset.
It being an unsecured loan involves no valuation of property and hence takes less time to process.
They are very useful to people who are not homeowners although the interest rates would be a bit on the higher side.
Disadvantages:
Since there is no security or collateral involved the interest rates are higher than that of the secured loans.
The lenders want to get their money back as soon as possible and hence the loan term is kept short and the installments large.
The loan amount offered by the lenders is less as there is no collateral from the borrower.
How can they be used?
The borrowers can use the loan for buying a car, use it for educational expenses, home improvements, holiday etc. There is absolutely no limit on what use the borrowers put these loans to. They can be used even for debt consolidation that is if the borrower has a past loan which he/she is finding difficult to repay a tenant loan can be of help. This would enable the borrower to repay all the loan installments in a single installment. So the borrower is saved of the hassles of paying for each loan individually and hence less chance of missing an installment.
Lenders normally put the following requirements for extending tenant loans:
The borrower should be in full time employment.
Sufficient identification and residential proofs should be there. (e.g. utility bills)
A home telephone connection/ in case of a mobile phone the agreement proof would be required
Borrower's bank account should have direct debit facility.
The pay slips should be computer generated
The lenders also look at the employment history and number of years spent in the last place of accommodation while processing these loans.
