Unsecured loans are more popular than secured loans in the UK as most of the people try to avoid borrowing money against their assets. Availing an unprotected loan simply means you don’t have to pledge your asset to the creditor. So, there is no risk of losing your asset like your home or car at all. You apply for an unprotected loan, get the approval and overcome your financial woes with the availed money.
Are unsecured loans completely risk-free? Don’t they have any other risks or cons involved? Well, it is correct that there is no collateral related risk involved, but still there are various cons or disadvantages that a person should consider before availing such unprotected loans.
Here, we discuss both benefits and disadvantages of unsecured loans.
Benefits of Unsecured Loans
There is no doubt that unprotected loans are one of the best borrowing solutions available in the credit market. Whether you are planning to start a new business, or want to renovate your home, or have some financial emergency, you always rely on unprotected credit solutions. There are various brokers and lenders who offer a wide variety of unsecured loans for bad credit in the UK. Some of the most popular benefits of liberated credit are:
1.Quick and Guaranteed Approvals
Availing a secured loan is a tiresome process and requires too many documents which add more stress to your situation. On the other hand, unsecured loans are easy to avail and you get instant approval on your loan application from the top lenders in the UK. They don’t ask you to submit any guarantee document or proof. Just fill a short and simple online form; and the rest process is phenomenal.
2. No Worry of Losing your Asset
You don’t have to take any tension for your property while availing an unprotected loan. Such loans are also very helpful to people who are in need of quick cash, but they don’t have any solid asset to pledge. As there is no collateral involved, you don’t have to wait for a week to get the credit amount.
3. No Credit Check Required
Many people in the UK hesitate to undergo a credit check. The reason is simple. They have either a poor credit score or their score is not good enough to get a loan. But various top lenders in the UK offer unsecured loans without checking credit history of the prospective customers.
4. Bad Credit People can Smile!
As per some reports, every third person in the UK has bad credit history. Such people struggle in borrowing money from the creditors. The unsecured loans for bad credit in the UK can be availed at a competitive interest rate.
5. Repayment Flexibility
A loan is a big responsibility and complete repayment on time is highly required. Most of the unsecured loans offered by the reliable lenders in the UK have flexible repayment schedules. You just need to choose tenure and pay monthly repayments by every due date.
6. Your Credit Scores goes up!
If you are a sensible borrower then you wouldn’t leave any stone unturned for paying off the loan amount plus interest. All lenders in the UK report your repayment details to the credit bureaus and the credit score changes accordingly. It is a simple mathematics. So, availing an unsecured loan and paying monthly repayments on time result in credit rating improvement.
Disadvantages of Unsecured Loans
It doesn’t matter how much beneficial or safe are unsecured loans, there are always some risks or disadvantages involved with such unprotected loans and all borrowers should be aware of them. The absence of collateral doesn’t mean a borrower can run away with the money and there is no headache of repayment. A criminal action can be taken against such habitual defaulters. Some of the disadvantages of availing unsecured loans are:
1. A Risk of Over-borrowing
The loan approval process of unsecured loans in the UK is so quick and simple that many customers end up with over-borrowing. For example, they need 5000 pounds for 6 months, but actually avail 7 thousand pounds for 12 months. Always analyse your requirement properly to avoid any chance of over-borrowing.
2. Higher Interest Rates
Unsecured loans are easily available but they come with a cost. If your credit history is poor or almost zero, then there are chances that a lender may ask you to pay higher interest rate. It all depends from one lender to another lender. Some lenders don’t discriminate between bad credit and good credit customers and some charge different interest rates from them.
3. A Risk of Higher Debt
There is always a risk of higher debt as unsecured loans are easily accessible to the borrowers. Some people take loans just to maintain their luxurious life and live under high debt. It takes many years to clear the complete debt. Always look for some financial alternatives before applying for a loan. If there is no way out, then of course you can apply unprotected loans online.
4. Your Credit Score is at Risk
If your credit rating is already poor, then you can’t think of decreasing it any more. But there is always a risk involved with the rating. If you somehow miss a few monthly repayments then your credit score automatically goes down.
5. A Risk of Hidden Charges
If you think all lenders do charity by offering guaranteed unsecured loans for bad credit then you are wrong! Some of the lenders in the UK keep some charges hidden and surprise you when you get the first loan statement. So, always read terms & conditions to avoid any upfront fee or hidden costs.
6. A Risk of Default
Many lenders in the UK genuinely look forward to help people who are in need of quick cash. But some people behave differently after availing the unsecured loans. They tend to forget due dates and hence miss monthly repayments. Due to this reason many lenders charge higher interest rates on such loans.
Whether you tend to avail an unsecured loan or a secured loan, you shouldn’t forget a loan is a big financial responsibility that needs to be handled properly. Always compare interest rates, tenure flexibility and other factors before choosing a lender. You can’t afford to add more problems to your unhealthy financial life.