Unsecured loans: Capturing the lions share

A couple of years back, taking a loan was an indicator of financial sickness; a red alert of some sort that some things were not right in your life. But, in the final decade of the last century, the scenario changed and changed dramatically. Where earlier borrowing money from lenders was the last resort; now it became a norm. With the changing lifestyle, borrowing money became a solution for available cash. In fact, it is a close second to credit cards. Suddenly, the loan market became a full blown entity of its own. What was witnessed was the rise of the boom in the loan market, which resulted in the mushrooming of a number of lenders and brokers all around London and other counties.

But, there is an unfair perception that people borrow money only for frivolous reasons. It is assumed that only fools will borrow money from banks and other financial lenders. But, if truth be told, this naïve assumption is far from the truth. UK borrowers are no fools. They have become more and more innovative in the usage of the borrowed money. Consolidation of debts, climbing the property ladder and paying for tuition fees tops the list; other reasons that are fast catching up include paying off property and tax bills, as well as making an investment portfolio.

Though, financial experts claim that UK customers fall prey to the lure of quick money (especially in the case of unsecured loan) and become eternally indebted to the lenders. But, facts state otherwise. The figures released by industry body Association of Payment Clearing Services (APACS) reveal that more than 55 per cent of loan and credit card holders make their payments in full and on time. Unlike the popular belief that borrowers are careless with their credit statements, these figures show that most loan seekers are trying to clear off their monthly statements to the best of their capability.

A number of industry bodies have also taken steps to educate the people about loans and money management. Borrowers are now aware of what questions they need to ask the lenders before deciding on a deal. Research showed that most loan seekers in their 30s or 40s did not clarify their doubts with the lenders before agreeing to the loan deal. This resulted in a lot of missed payments or defaults. Borrowers do not want to default on the loan; but lack of knowledge about the way loans function earns them poor credit scores.

The stakes are heavier for the borrower if he takes on secured loans instead of unsecured loans. Although secured credit brings with it a whole lot of advantages, its biggest risk factor is the loss of the borrower’s home. The loan seeker is required to place some asset with the lender. In case of failure or delay in payment, the lender can go to court and legally take over the borrower’s home.