Unsecured Loans For People With Bad Credit

An unsecured loan is a collateral-free means of borrowing a sum of money. They are regularly referred to as tenant loans because they are available to people who aren't homeowners. Loans for people with bad credit are possible, but a vastly high APR is charged in light of the higher risk posed to the lender.

Advantages of Unsecured, Low Interest Loans

• Lower risk than a secured loan. Whilst defaulting on a secured loan results in house 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, loans for people with bad credit may 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. Those that only have a minimal credit history are vastly more likely to be refused an unsecured loan. Most high street lenders will also reject applications for minor adverse, including slightly late payment.
• 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 that this is the case.
• 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 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 stays on personal credit files for a period of 6 years.

By: Asa Ghaffar

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