Personal loans are the hot new thing in the credit industry. As consumers, we have become more and more suspicious of the traditional banking industry, likely as a result of the credit crunch that shook the world’s economies and so many household’s personal finances in the late noughties. Moreover, we are also cluing ourselves up to the relatively high cost of alternative methods of sourcing credit when we need it, such as credit cards.
The result? Personal loans are booming and are expected to have increased 20% by the end of 2019 compared to the year before; affordable, flexible loans that you can apply for direct with a lender. Often, personal loans are a type of unsecured lending, available without putting up collateral or other assets. There are a couple more things you need to know about the benefits of using unsecure personal loans before you apply:
What Is An Unsecured Loan?
An unsecured loan is not unsafe, like the name may seem to suggest. It is simply a straightforward lending agreement between two parties, wherein credit score or personal credit reports are assessed to negotiate repayment terms. Typically, an unsecured loan is repaid within terms of a year to ten years.
An unsecured loan is typically a personal loan, but there are other names or types of loan that you may recognise it as:
- Consolidation Loan – Due to the flexibility and benefits of an unsecure personal loan, it is commonly used for debt consolidation
- A Term Loan – A term loan is the name given to a loan that has a single, dedicated repayment schedule. For example, after a year all the repayments will be made and then the agreement is over.
- A Revolving Loan – In contrast to an unsecured term loan, the term of a revolving loan repeats. For example, you can borrow a set amount and must repay the money over the course of three months. After that, the borrowed amount can be re-set.
Unsecured loans are subject to affordability and credit checks. This ensures customers are evaluated on their past credit history and their previous ability to repay a loan, as well as their expected outgoings and ability to repay the loan in the future. This will be based on their income, which may be cross referenced with other financial commitments.
Impressively High Borrowing Limits
We have already established that the unsecured personal loans market is booming. With increased appetite in this unique lending market, regulated and authorised lenders can raise their borrowing limit. This means that customers are more likely to get a high value loan than ever before, reducing the number of secured loans taken out against property, credit card debt and other alternative means of financing.
Consumers can now tackle the bigger costs in their life with improved ease and accessibility. This could be anything from buying a car to extending your home to tackling an emergency cost.
Flexibility Is Invaluable
Not only is the lending limit higher than ever before but consumers can customise how much money they need to borrow. This prevents over-borrowing which could threaten your financial security and could be a sign that you need to reassess your relationship with money, as you might over spending or living outside your means. This is not sustainable, and you are likely to end up in debt.
Moreover, unlike loans available from traditional banks, you can apply directly with a lender online. This means you can complete a simple, informative application form at a time that suits you, from anywhere. Many direct lenders are also brokers. This means you are almost guaranteed a loan, because even if a lender cannot meet your request, they may have a partner lender that they can connect you with, potentially saving you time and money!
Unsecured personal loans repayment terms can be customised, just like the value of the loan. Typically, a personal loan in the standard bracket of £2,000 – £20,000 can be repaid over a period of one to ten years! It is worth noting that the total cost of a loan will be more expensive, the longer you have the loan for.
You Don’t Need To Already Have Assets For Access
For a secured loan, you will need to show a lender how much equity you have in an asset you own, most commonly a property of some kind, even with a mortgage. Therefore, to qualify for this kind of loan you must have substantial asset. This is extremely unrealistic for many people; an unsecured personal loan is accessible to so many more people regardless of whether they own their home or not.
Quick Access To Cash
Continuing the comparison with secured loans, an unsecured personal loan has a quick and easy application process. This means that consumers could have access to the funds they need on the same day they apply, depending on the lender and the time the application is submitted. In contrast, because so much information will need to be presented for assessment with a secured loan, the process takes longer and money may not appear in the recipients account for a week or more.
Payday Loan Alternatives
Payday loans are potentially dangerous sources of credit and are certainly not a reliable way of financing or funding anything, other than a genuine financial emergency (of a low value). However, the immediacy and convenience of a ‘small loan’ is extremely attractive. Like we have already said, an unsecured personal loan can be as low as £1000 and can be paid into the recipients account on the same day, reducing the need for an extremely expensive payday loan (which will have an APR of over 1000%). Quick personal loans mean that customers can tackle their financial emergencies, whether that’s a burst pipe or a car breakdown, quickly and efficiently – without committing to massive and unrealistic, lump sum repayments!