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Unsecured Loans
An unsecured loan is a personal loan, where the
lender cannot lay claim on any of the borrower’s belongings, in case they fail
to repay. Instead, the lender is relying solely on the ability of a borrower to
meet their loan borrowing repayments. Usually, the lender has build a
relationship of trust with the borrower. Either through previous loans or
through credit history and personal financial situation of the borrower.
Because you are not securing the money you are borrowing, lenders tend to limit
the value of unsecured loans compared loans with security. The repayment period
is shorter, compared to secure loans, and will, normally, range from anywhere
between six months and ten years. Unsecured loans are offered by traditional
financial institutions like building societies and banks, but also recently by
the larger supermarkets chains.
An unsecured loan can be used for almost anything - a luxury holiday, a new car,
a wedding, or home improvements.
An unsecured loan is good for people who are not homeowners and cannot use their
property to obtain a secured loan; e.g. a tenant living in rented accommodation.
There are a few things to consider before applying for an unsecured loan:
Unsecured loans are invariably more expensive than secured loans, and the
repayment periods demanded by lenders are shorter too. This is because they have
no guarantee that you can repay the loan, and therefore charge you more in
interest to cover the cost of insurance policies that they need to take out to
protect them should you default on repayments. In the event that a borrower does
not pay up, the lender will invoke the terms of the legally-binding credit
agreement. His only way to claim the money is through the legal system.
Lenders are obliged by law to tell you how much they charge for this type of
finance and this is worked out as an annual percentage rate (APR). Ask whether
the APR figure quoted is 'typical' or is what every applicant is charged. You
should also investigate whether the interest rate charged is fixed for the
lifetime of the loan repayment period, or whether it varies with the base rate.
Check too on whether there are early repayment penalties.
Unsecured loans vary from lender to lender, so it pays to shop around before
making a final decision.
Karin Boode is the founder of the Loan Info Center, who strives to provide
valuable information regarding any type of loan via the http://www.loan-infocenter.com
website.
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