An 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 lending that people can avail, the other being payday loans. You do not need a credit card to apply for an unsecured loan. Your bank will advance you the cash or loan agency, sometimes with a guarantor standing in your name in case of default. Such loans are repaid monthly.
They have very high interest rates, especially payday loans. Unsecured loans are not so bad, with an APR of less than 50%. The amount lent varies from lender to lender, but does not go more than a few thousand pounds. Unsecured loans are the last to be repaid, only after other payments on the account are paid. Unsecured loans are not secured by any asset like home or car. It is based on the assessment of a panel of lenders who will help you find the best loan for your requirement. Companies offer a range of loans like these, secured or unsecured, depending on your requirement.
Different lenders charge various APRs which they have to show in their claims as representative APRs which include all other charges with the interest amount. They charge differently based on customer profiles, their credit rating and the lender’s policy of course. Therefore APRs can range from single digits to the 90s.
Some Unknown Loan Questions …
Can I face a lawsuit if I do not repay a loan?
Unsecured loans are completely legal and you can face prosecution if you do not repay, although there are no guarantors or assets attached to your loan.
What are the pros and cons of unsecured loans?
The advantages are that they are easily obtainable if you need a quick amount of money. There are no questions asked and payment terms are flexible from one to five years. There is no down payment penalty, and some loans give a repayment vacation period during the first months after the loan.
The main disadvantage is that it is an expensive repayment.
Who is the best candidate for an unsecured loan?
Although it is not considered a critical factor, a good credit history creates a good candidate for unsecured loans. If it is a bank that gives this loan, an account holder is a good candidate. A longtime resident of the place with a secure job is also a good candidate. So by giving the loans, the lenders consider those candidates as best candidates who can repay their loans in a short period of time due to their secure work and flawless credit history.
Is the interest rate (APR) flexible? How is it calculated?
The interest rate on an unsecured loan is calculated depending on the following factors:
1. The amount borrowed – the interest rate is inversely proportional to the amount borrowed normally. If a large amount is taken as a loan, then the interest rate will be less while the interest rate will be high for a small loan
2. The term of the loan – long-term loans have higher rates, while short-term repayments in a short period have low interest rates.
3. The borrower’s credit history – a good credit history will provide you with lower rates. But if your credit history is not flawless or you have defaulted in the past, then you will have to pay high interest rates.
What is the maximum term for such loans?
The maximum term of collateral loans is usually five years.