There are a number of different reasons why someone would want to take out an unsecured loan. Some of the main ones include being able to purchase gadgets or equipment, to fund a wedding or other celebration, to take a holiday, or to renovate the property that you are living in. However, these are just examples, as there are no hard or fast rules as to what a consumer loan can be used for.
Although when you apply for a loan you are legally required to state what the money will be used for. The beauty of taking out an unsecured loan, as opposed to a secured one is that you do not have to put up your property as a form of collateral against it. With an unsecured loan you also get the flexibility of being able to pay it back at any time you so wish to. This means that you are able to clear the loan as your personal financial situation improves.
What are Unsecured Loans?
Unsecured loans are credit cards, student loans, and personal loans - these are term loans. This is also called a revolving loan - which means that it is a loan that has a credit limit that can be used, paid and spent again.
Unsecured loans can also be used to offset smaller expensive loans that you may already have and are paying into different pots. By combining all of these loans into a large single one, borrowing cost savings are achieved if it has a better interest rate and comes with lower monthly costs. It also removes the need to pay multiple different account management fees for each of the individuals loans that you had.
Things You Should Remember
The cost of paying back the unsecured loan does not get away from you, it is important that the monthly installment payments are at just the right amount. This means that you should have some money left after paying this for other living expenses, such as home insurance, utility bills, and food. One way of ensuring that the monthly installments are kept to a minimum is by increasing the repayment period. This is done during the loan application process
However, if the annual interest rate on the loan is particularly high, spreading the loan over a long period of time means that it becomes more expensive to pay back in the long run. It is for this very reason that you should seriously consider your personal life situation before agreeing to all of the terms of an unsecured loan. One way of working out how much you can afford to pay back in monthly installments is by establishing what your monthly budget is. By doing this, it should ensure that you never run into any difficulties with paying the loans back.
In order to be allowed to take out an unsecured loan you must be a minimum of 20 years old, have a regular source of income, and have no cases of default. When considering your suitability for a loan, the lender also considers any other loans that you may already have taken out.