Unsecured loan or cash advance is a small loan that you can take at any time. It is one of the two most popular options for short-term loans that people can take advantage of, the other being payday loans. You do not need a credit rating to apply for an unsecured loan. Your bank will advance the cash or a credit bureau will, sometimes with a guarantor on your behalf in case of default. These loans are paid in monthly installments.
They carry very high interest rates, especially payday loans. Unsecured loans aren’t too bad, with APRs below 50%. The amount borrowed varies from lender to lender but does not exceed thousands of pounds. Unsecured loans are the last to be repaid, only after any other charges on the account are paid. Unsecured loans are not secured by any assets like a house or a car. It is based on the evaluation of a panel of lenders that will help you find the best loan for your requirement. Companies offer a variety of loans like this, secured or unsecured, depending on your needs.
Different lenders charge different APRs, which they must display in their ads as representative APRs, including all other charges with the interest amount. They charge differently based on customer profiles, their credit rating, and of course, the lender’s policy. Therefore, APRs can range from single digits all the way up to 90s.
Some frequently asked questions about unsecured loans…
Can I face legal action if I do not pay a loan?
Unsecured loans are perfectly legal and you can face legal action if you don’t pay, even if there are no collateral or assets attached to your loan.
What are the advantages and disadvantages of unsecured loans?
The advantages are that they are easy to come by if you need a large amount of cash in a hurry. There are no questions asked and payment terms are flexible from one to five years. There is no prepayment penalty, and some loans provide a payment holiday period for the first few months after the loan is taken.
The main disadvantage is that it is an expensive loan to repay.
Who is the best candidate for an unsecured loan?
Although not considered a critical factor, a good credit history makes you a good candidate for unsecured loans. If a bank is providing this loan, the account holder is a good candidate. A long-time local resident with a secure job is also a good candidate. So while granting the loans, the lenders consider the candidates as the best candidates who can repay their loans in a short period of time due to their secure job and impeccable credit history.
Is the interest (APR) flexible? How is it calculated?
The interest rate on an unsecured loan is calculated based on the following factors:
1. The amount borrowed – the interest rate is usually inversely proportional to the amount borrowed. If a large amount is taken as a loan, then the interest rate will be lower, while the interest rate will be high for a small loan amount.
2. The term of the loan: Long-term loans have higher rates, while short-term loans that can be paid off in a short period of time have lower interest rates.
3. The credit history of the borrower: a good credit history will allow you to obtain lower rates. But if his credit history is not impeccable or he has defaulted in the past, he will have to pay high interest rates.
What is the maximum term for this type of loan?
The maximum term of unsecured loans is usually five years.