Unsecured loan is the one which does not have any specific security attached to it. To be frank, there is no strict legal security attached to this type of loan.
These types of loans in the UK bank are available with a signature and the bank does not ask for any other security. Thus, even if you fail to repay your money there is no form of mortgage. All that can be done is to inform credit collection companies who will be after you to extract money. Since, the banks face high risk in such case and the borrowers are easily lured into going for it, the rate of interest is comparatively higher than other type of loans on offer in UK.
Generally, people retort to this type of loans in the UK when they are in immediate need of money. Friends, relatives or even acquaintances come to rescue when one wants loan in the form of personal loan without any formalities. Usually, it is only a signature that is required and you get the cash in hand. There is a specific time and date or even time period decided mutually by both the parties who is involved in the monetary transaction. In such cases, even if the date that was decided upon to return money is not maintained a few days are allotted for the borrower to return the entire borrowed cash.
At the time of purchasing from credit card the owner gets bound to an unsecured loan. As you keep on making purchases from the credit card the amount that has to be paid back to the bank. The amount of the loan in the form of credit limit is pre-decided by the bank. The owner of the credit card is aware of this unsecured loan and knows that he is borrowing money every time the card is in use.
Factors that Unsecured Loan Lenders Consider Before Lending
No one can deny the fact this type of loan comes with a tag of risk to the lenders since no mortgage is considered here. Thus, the lenders have their predetermined criteria to select the borrowers. Some common factors that borrower should possess are-
- Secure Job
- Good credit score and history
- Live or has lived for a long time at one address
- Existing customer of the bank
When a borrower is unable to pay back the money there is nothing that will be lost but eventually, the credit rating will be hampered. In the future, this may limit your chances to get loans in the UK. The lenders take legal actions in order to reclaim the loan. At the end of it you have to pay back the loan and if the lender takes legal actions then you will also have to pay the expenses incurred in the procedure by the lender.