At Employee Loans, we want you to make an informed decision when you start your finance journey with us – whether you’re an employer or an employee.
That’s why we have taken it upon ourselves to gather all the information you need about a variety of finance terms that you may not be familiar with. On this page, you’ll get to know what unsecured loans are, who are they for and whether they can be the right finance solution for you.
Unsecured Loans Explained
An unsecured loan is a type of finance where the decision to lend money is made solely based on the borrower’s creditworthiness. It stands in contrast to a secured loan, where the borrower needs to use some type of asset as collateral in order to get approved for finance.
Unsecured loans represent a higher risk for lenders, which is why they typically have higher interest rates and require the borrower to have higher credit scores for their application to be accepted.
In fact, unsecured loans are usually only available to those with an excellent or very good credit score and a steady source of income, whereas a secured loan can be granted to people with less than ideal credit files, as long they have an asset to secure the loan against. This asset is usually a vehicle or a property, depending on the type of finance you’re applying for and on each lender’s criteria.
Positives of Unsecured Loans
– Taking out an unsecured loan means less risk for you as a borrower, as you won’t risk having an asset repossessed.
– An unsecured loan can be a good way to consolidate existing debts into one single monthly payment.
– An unsecured loan may help you build an even stronger credit profile. If you already have access to other types of credit it will diversify your ‘finance mix’, which is seen as a positive indicator of financial health by most credit providers and, if you meet your repayments on time every month it will help you build your creditworthiness and credit score.
Negatives of Unsecured Loans
– As your loan will not be secured against an asset you will be likely pay a higher rate for it, meaning the total cost of credit will be higher than with a secured loan.
– If you are unable to meet your repayments it can damage your credit file and prevent you from securing finance again in the future.
– You are unlikely to be approved for an unsecured loan if you don’t have a strong credit file.
Like with any financial decision, before you apply for an unsecured loan, you should ensure that you’re fully aware of your financial situation and assess your ability to repay the loan in full.
At Employee Loans, we offer a variety of finance options, suited to every employee’s circumstances. If you’d like to know more about our finance solutions, our team of experts will be happy to help.
We’re here to guide you!
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Telephone: 01202 688177
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