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Shopping for an unsecured loan has never been easier – thanks to its online version. Now, borrowers can look for a lender and submit their application without even moving a lot. However, they still need to work on a decision whether they want to avail its secured or unsecured type. Each type of loan has its own advantages and disadvantages and if you’re clueless what these are all about, then this article will be your guide.
Differentiating Secured Loans From Unsecured Loans
When applying for a secured loan, the borrower is demanded to yield an asset or two. The collateral will be used by the lender as a protection against the money borrowed. In case of an unfortunate event that leads to default, the lender will rightfully repossess and sell the property to recover the unpaid amount of the loan.
On the other hand, unsecured loans are loans that won’t require any collateral; therefore, there’s no need to surrender a car, mobile phone, camera, house, stock, etc., just to be qualified. Unsecured loans no guarantor are unsecured types of loan that won’t even demand a guarantor. However, the borrower should provide a proof of income. After all, the lenders are willing to lend money as long as the borrower can guarantee that they are capable of repaying them back.
Advantages And Disadvantages
Here are some advantages of secured loans:
- Since lenders have something to hold on to, the interest rate is lower and more affordable.
- The repayment option is more flexible as borrowers can compensate the loan for a longer time.
- Lenders can provide a large amount of money.
- Individuals with bad credit can avail the loan easily because lenders are guaranteed to have their money back.
Some disadvantages of secured loans are:
- As a borrower of secured loans, you are demanded to pledge collateral.
- The lender has the right to claim your valuable items in the event of default.
- Since the repayment period is longer, this only means that you can’t be debt-free for a long time.
Some advantages of unsecured loans are:
- There’s no need to provide any substantial asset in order to be qualified.
- No property is at risk because lenders will not demand collateral to be eligible.
- A loan is a good option when you want to take advantage of a smaller amount.
Some disadvantages of unsecured loans are:
- Since the amount offered is smaller, the repayment period is shorter.
- The loan carries a high-interest charge that is difficult to settle.
- The qualifications are more difficult to meet.
Receiving An Unsecured Loan With A Bad Credit
With the versatility of market nowadays, lenders have accepted both good and bad credit borrowers. However, most lenders deal with those who have impeccable credit ratings as a way to protect their money. Nevertheless, those who have unpleasant credit ratings can enjoy the benefits of having a loan. Whatever loan option is selected, the borrower should be responsible for settling the loan on time to avoid further credit issues.