Unsecured Loans |
Unsecured loans are mainly tenant loans or personal loans where no security is provided. Homeowners who don't want to risk their homes or have little to no equity can apply for unsecured loans which are usually more expensive than secured loans.
When an asset (usually a home) is pledged to the lender for repayment of a loan, the asset is called collateral. With an unsecured loan, no asset is pledged and without collateral the lender depends on the borrower's legal obligation to repay the loan but has no claim to any of the borrower's assets.
Without collateral the lender has to rely, mainly, on the borrower's credit rating to measure the risk of lending money and if the credit score is low then the interest rate on any loan offer can be much higher to reflect the greater risk taken by the lender.
The lending criteria vary from lender to lender. If a potential borrower has a poor payment history or has judgements or is self employed, some lenders may make an offer of an unsecured loan but for a reduced amount and at a higher interest rate, while others may make an offer of an unsecured loan only if a guarantor can be provided.
If you don't own your own property then, unless you have other assets with which you can guarantee repayment of the loan, most lenders will consider your loan application as a tenant loan application, whether you are a tenant in private property or a council tenant or living with your parents or friends.
Where tenant loans are available, some companies make upfront charges which often are non-refundable even when the loan is not forthcoming. Additionally, higher APRs are levied.
Tenant or unsecured personal loans usually have
Although the lender has no claim to the borrower's home it will, almost certainly, take action to recover its money if repayments are not made or not made on time. The costs and consequences of any judgement, if made, can be considerable and any action taken by the lender in court can further damage the credit rating of the borrower making it more difficult and more expensive to get credit in the future.
