Unsecured loans – Making sense of all the options

If you are in need of a loan, no doubt that you have done your homework and found many options that you could choose from, especially in the unsecured loan market. These loans have quickly become very popular and will continue to grow as more and more people turn to credit during tough financial times.

Well, that and the fact that even if you have a bad credit rating, you could still qualify for such a loan. This really makes them more and more attractive to the public of the United Kingdom.

The other plus point is that you simply do not need any form of collateral to secure one of these loans. Well in most cases that is. For a logbook loan, your vehicle acts as collateral. Finally, people turn to these loans because they are simple to apply for and you will receive an answer to your application in a matter of a few hours. No waiting for a week only to get turned down like a conventional loan.

So what kind of unsecured loan options are available to the public in the United Kingdom? There are many. Remember, these loans also remove regular financial institutions like high street banks right out of the picture. Note, loans come with different interest rates, often depending on the loan option that you choose. Let’s take a closer look.

Payday loans

Although these loans are readily available, they should really be a last resort. Why? Well, they have some of the highest charges of all the unsecured loans (sometimes with APR ratings of close to 1000%) and they are generally only for small amounts of money. Once you have borrowed the money, you must pay it back by your next payday otherwise you will incur massive penalties.

Guarantor Loans

With this loan, the lender needs someone to act as a guarantor on their behalf. What is a guarantor? Well, it is someone who will co-sign the loan for you. Should you then miss any payments, it is the guarantor’s responsibility to make those payments you have missed. This provides the lender with peace of mind knowing that if one party reneges on a payment, the guarantor is legally bound to step up and pay on their behalf. Bear in mind, although you might have a bad credit standing, any guarantor that co-signs must have a good credit record for the loan to be granted. Guarantor loans often have better terms than other unsecured loan types because of this.

Instalment loans

An instalment loan is pretty straightforward and perhaps how everyone thinks all loans work. Here, you agree on the amount, interest rate, instalment and length of payment with a financial institution. They give you the amount agreed upon and you pay it back in monthly instalments of a set period, for instance, 36 months. Interest is added and that needs to be paid back as well.

Logbook loans

Logbook loans are for borrowers who have their own a motor vehicle, truck or motorcycle. Here the vehicle acts as a form of security. If the person stops making their monthly repayments, the lender, who is the legal owner of the vehicle during the course of the loan, may claim the vehicle to be sold to recoup any costs. The condition of the vehicle, as well as the monthly income of the borrower, is crucial in determining how much money will be borrowed to the applicant by the lender. Note that the vehicle must be fully paid off as well as comprehensively insured before any logbook loan is given to an applicant.