Unsecured Personal Loans Are Still Available Despite The Credit Crunch
One of the great things about recession is that it really helps to sort out the cream from the milk in terms of providers and customers.
A strange comment? Maybe, especially for the many people that have become used to free and easy credit and have considered access to loans as a right rather than something that has to be earned.
We all got fat, lazy and stupid during the boom years. We expected something for nothing and, surprisingly, as competition for lending grew, we usually got it! Well, times have changed and it is now time for those that have looked after their financial pedigree to reap the reward of being the most attractive customers to the lenders that are still willing to advance money.
Of course, just about anyone can still get an unsecured loan, but the result of the financial meltdown has led to tougher standards of underwriting and a greater spread of rates charged to reflect underlying risk. Also, the amount that can be borrowed on an unsecured basis has been reduced for those with poorer credit histories.
The mortgage lending market has been greatly reduced over the past two years. This secured lending market has led to the perception that access to unsecured loans has also been restricted. This hasn't strictly been the case. Lenders rely on relatively high rate lending products to earn money. What they have not been keen on is lending to anyone with a dubious or chequered credit history. If you have been one of those consumers that carefully looked after your credit history and made sure that you have paid bills on time, not missed a loan payment or applied for too much credit, you will have always been an attractive prospect to lenders! What they sought is customers with the lowest possible risk of default.
What is happening now is that confidence is returning to the market and lenders are willing to take higher risks – in return now for higher interest rates.
Finding a loan provider is a relatively straightforward process. However, before you do this you may wish to check your credit history to make sure that there are no errors or that any historical information is correct. This can be done quite simply by applying for a copy of your file from credit reference agencies such as Equifax or Experian. These will provide the statutory information held on you for £2 or you can avail yourself of their free credit check report which comes in a more useful and readable format. If you spot any errors, they have a legal obligation to correct them (provided, of course, that you can prove your point) or you can approach the appropriate agency to have the issue resolved.
Armed with your accurate credit history, you can now scour the market for the best possible terms for you. There are many comparison websites that list the best terms available along with any restrictions. Such sites include beatthatquote.com, gocompare.com, tescocompare.com and moneysupermarket.com. All will return results for the major lenders as well as some of the smaller players giving you a feel for the rates and terms that are available. Current best deals for an unsecured loan of £8,000 repayable over three years are from Alliance and Leicester and Nationwide at 7.9% with no arrangement fee.
Unsecured loans are usually for amounts up to £15,000 although better quality customers may be able to achieve higher value loans. Factors that will influence your lender's view will be not only your credit score but also your current earnings. It will also help if you have lived at your current address for a number of years.
One of the advantages of getting an unsecured loan is that no additional security is normally necessary. It may, however, be a requirement to provide additional guarantors as a means of supporting an application. This can, if such a guarantor can be found, improve the credit standing of the application. Should the primary borrower fail to make a payment, the guarantor can be asked to stand in his or her stead.
Higher value loans will usually require some form of security. As a consequence, the rate charged will be lower than those charged for a commensurate unsecured loan. With a secured loan, the usual security is a pledge on the house.
With international interest rates set to increase over the coming months, loan rates will increase. This also coincides with a desire by lending institutions to increase their margins so as to help restore profitability and recoup losses and write offs.