It’s just logical to have some sort of security attached to a loan or anything else that’s borrowed. Yet, the money market changed over time and the exact opposite is now available: unsecured loans. The rationale about this is that there are cases when the consumers cannot offer some any form of security like collaterals but they can pay the loan. Still, many are not sure if they should apply for a personal loan in the UK because they think they’ll pay high interests. In some cases, this is true, but high interests also come with justifications.
Unsecured personal loans often don’t have collateral. As this is the case, applications are processed quickly. Some lenders even process personal loans online. One reason behind the high interest rate on unsecured loans is because of the absence of collateral. Lenders don’t estimate the value of a property and collect it. This has a twofold effect: it hastens the application and it removes the lender’s safety net in case the borrower can’t pay.
Accessible to All
The zero collateral property of unsecured loans opens this option to virtually every UK resident. For example, if you’re renting a flat somewhere or even if you own a property somewhere in the UK, one good option to get fast money is through a personal loan. Your property or residence is still secure from being reclaimed should you fail to pay the fees. Also, even people with bad credit ratings can file for a personal loan. They are typically granted the loan, though the lender might require them to have a guarantor sign the deal. This contributes to the high interest of this loan because every loan applicant is gauged with the same risk factor.
This kind of loan is risk-free for an applicant, but it’s naturally high-risk for any lender. Financial institutions don’t have any hold whatsoever to a property they can repossess if ever the borrower cannot pay. When this happens, the money sent doesn’t return and the lender suffers. As a result, banks and lenders increase their interest rate to have a safety net for their business.
For consumers, it imposes high interest rates but it provides money for immediate needs. For lenders, it’s risky to lend money to those who seem to not have the means to pay but it also returns money because of the high interest. Its unsecured nature may bolster the interest, but it’s definitely worth it than having your home or car repossessed because of an unpaid loan. In addition, proper research and information could help in reducing the interest rate of the loan.