Bad Debt Unsecured Loan

Posted on February 08, 2012 by Admin
Bad Debt Unsecured Loan

Bad Debt Unsecured Loan

An unsecured loan is a means of borrowing a sum of money without the provision of collateral. They are regularly referred to as unsecured tenant loans because they are available to people who aren't homeowners. Although loans for people with bad credit are widely available, the rate of interest will be proportionate with the risk faced by the lender.

Advantages of Unsecured, Low Interest Loans

  • Lower risk than a secured loan. Whilst defaulting on a secured loan results in mortgage repossession, this isn't the case with an unsecured loan.
  • Short term borrowing. It is possible to get tenant loans to cover shorter term borrowing. The Consumer Protection Act 1974 permits the borrower to return any money without penalty at any time.
  • No equity. If no equity is available in the property, it is unlikely that someone will be able to get a secured loan. Low interest loans may be available on an unsecured basis. However, medium and long term loans for people with bad credit can be difficult to attain.
  • Quick and easy application process. As no surveyors report is required, it is possible to apply for and receive the proceeds of a loan in just days.

Disadvantages of Unsecured Loans

  • Higher decline rate than secured loans. Applicants with minimal previous credit activity are vastly more likely to face rejection. Most high street lenders will also reject applications or increase the rate of interest for minor adverse credit.
  • Not available for business or speculative purposes. Although not available for these reasons, telling the lender that home improvements are planned isn't uncommon. No checks are ever made to see if the money has been used for the stated purpose.
  • Shorter repayment periods. Having less time to repay a debt means that monthly repayments are higher. However, this does mean that less interest is paid over the term of the loan.
  • Maximum borrowing limit is lower. Unsecured loans have a lower borrowing limit of £25,000 due to the higher risk. It is possible to borrow vastly more through a secured loan.
  • Higher APR for adverse credit. Loans for people with bad credit tend to charge a usury or higher rate of APR. A secured homeowner loan can reduce the rate of APR substantially as the lender is afforded greater protection.

Taking out a low interest unsecured loan can prove to be an excellent way of borrowing money. Tenant loans don't put the family home at risk. It remains important to keep-up with repayments as non-payment will result in adverse credit and this shows on personal credit report for a period of 6 years in the UK and 7 years in the U.S.