A Guide To Unsecured Loans
We live in expensive times. Jobs have remained static and so have salaries. But rising inflation rates have resulted in people having to pay more for the same items. This means that some of us can struggle to make ends meet by the end of the month. This can be manageable if we don’t have any kind of emergency but what if an emergency should actually occur? Where will you find liquid and immediate cash for your such situations? Borrowing from friends and family is OK but its not a long-term option. You do need to find banks and lenders who will lend money quickly but with the least amount of paperwork.
This means you need an unsecured loan. But there is no need to worry. There are ways and means by which you can approach lenders to get money for simple day-to-day requirements. To assist you, we’ve created a short guide that should help you out.
Types of Unsecured Loans
At present, there are three main types of loans that you can get with a short approval time.
Personal Loans — These are unsecured loans in which you do not have to provide a security or lien on property or cash deposits. These loans are actually based on your credit rating and they are approved quite quickly depending on your lender. Please note that you do have to prove employment to be eligible for this kind of loan. On an average, you can get up to £25,000 as a personal loan and repayment may be spread out over 10 years or more.
Secured Loans — Secured loans require security in the form of property, vehicles or cash deposits. It also means that if you cannot repay the loan, you may lose the item you have left as security. However, these loans are better as you can borrow up to £100,000 or more depending on the value of your secured items. These loans also have a very long repayment period and it may extend anywhere from 25 years to 30 years.
Debt Consolidation Loans — These loans are not exactly cash loans but they do gather all your debt under a single lender. By doing this, you get a standard lending rate and a single loan payment per month that is disbursed to all your lenders. This loan is very beneficial for borrowers who are falling behind in their payments.
How Do I Get These Kinds of Loans?
Of course, there are thousands of lenders online and offline who will gladly help you out with loan procedures. However, the exact procedure will vary from lender to lender. You can choose from online lenders, pay-day lenders who lend for a month, private lenders, banks, credit associations, building societies, supermarket lenders, and even high-street stores. We cannot recommend any particular kind of lender but we do urge you to do your research properly. Compare lending rates, repayment procedures, processing payments, yearly fees and other details before settling on a single lender.
Is There Anything Particular To Be Done Before Applying For a Loan?
Yes, most banks have made the loan application procedure quite simple and approval procedures are accelerated to ensure that you get a loan quickly. However, you should remember that you have to repay the amount through monthly payments. If you cannot make payments, you will considered a defaulter and this will affect your credit rating considerably. So, we do urge you to consider these few questions before taking a loan;
- Can you afford the payments? Your monthly loan payment should be about 10-20% of your monthly salary.
- What about the APR? The Annual Percentage Rate is set by the lender. Use this rate to find out just how much you will be paying in the form of interest on your loan.
- What about fees? Most lenders have hefty but hidden processing, approval, paperwork, etc. fees which cut into your actual borrowing amount. Find out how much these payments will be before taking the loan.
- Is early repayment possible? Most lenders don’t like this and they charge a hefty early closure/ early repayment/ early redemption penalty.
- Are there any discounts? You might not know this but lenders do offer discounts, breaks, and other freebies for borrowers who are not ready to sign on quickly. Ask for offers before signing on.
Is This APR Important?
Yes, APR rates are critical to a lender and borrower as they determine just how much you will be paying in the form of interest and for how long. Most borrowers use an online loan calculator and find out how their monthly payments are split. However, the APR is not the be-all influencer on a loan. For example, along with the principal amount, most lenders will tag on essential fees and payments that will increase your principal amount. Lenders will also assess your APR according to your personal risk-based pricing. This means that the lender will assess your individual situation and then set an APR rate that may be above or at-market rate. It is possible that you may have to pay a higher-than-market rate for your loan if you do not have a steady job or security for the loan.
What Is The Lending Process Like?
Most lenders have a simple process for loan application. We do recommend keeping basic paperwork ready. For example, you should have employment details, housing details, property/car papers, bank account paperwork, credit rating approval, etc. Irrespective of the paperwork you provide, banks will also do their personal checks in the form of credit checks, outstanding payments, loan defaults, bankruptcy notifications, etc. If you do have such notifications on your credit history, please make sure you have sufficient paperwork and justifications for them.
How Do Early Repayment Procedures Work?
Some lenders allow you to close your loan early. Others may charge you an early repayment fee which may consist of almost 1% to 2% of the entire loan amount. Usually, the early you repay the loan, the higher the repayment penalty fee.
Am I Protected Under Consumer Credit Act?
The Consumer Credit Act 1974 protects borrowers and prevents lenders from using hidden fees, exploitative APR rates, etc. According to the Act, the lender has to be upfront about lending fees, charges and payments and any other conditions that are applied on the borrower during the loan tenure. You are also given a cooling-off period so that you can assess the loan and decide whether you actually require the loan or not.
What Is This Cooling-Off Period?
According to The Consumer Credit Act 1974, you have fourteen days from the day of signing the loan or from the date of receiving the loan agreement to cancel the loan. You can also cancel within 30 days of taking the loan after repaying the principal and the interest amount of one month.
How Does The Lender Recover a Profit?
Most lenders will recover their profits from the interest charged on the loan. As a result, it is in your best interests to keep the APR rates as low as possible. Similarly, they also try to recover their profits in the form of hidden fees and charges.
We hope that these few FAQs have helped you understand just how the unsecured loan process works. You should know that lenders will use big terms and complicated words that may confuse you. But you have every right to ask questions and query the terms that you are offered. Don’t be afraid to bargain. Lenders are always waiting for business and they will work with you to provide the best terms to retain your business.