What is an unsecured loan?
An unsecured loan is a loan agreement that is not secured against an asset, but still serves the full purpose of a loan.
Unsecured loans are generally smaller than secured loans and the interest rates tend to be higher to reflect the increased financial risk to the borrower (secured loans offer generally lower interest rates because the finance is secured against an asset).
What does the word “secured” mean when it comes to loans?
The word “secured” in context of loans refers to whether or not the finance is lent out on the basis that, in the event that there is a default on a loan, the finance is recoverable via an asset or the sale or an asset.
One example is in the event of a secured loan, (generally a loan that is secured against one’s home) the equity is recoverable through the asset in the event of a default.
Unsecured loans are not secured against anything, so it is a standard personal loan that operates as normal with no promise of recoverable value through an asset.
Guarantor Loans are one form of unsecured loan, another common form of unsecured loan is a payday loan.
However payday loans can also be refused in the event of a poor credit rating and the interest rates are known to be high due to the perceived risk of the client, however small the borrowed amount.
The beauty of a guarantor loan as an unsecured loan option is the fact that you can borrow a significant amount of cash over a long period of time, with a more palatable interest rate than that of a payday loan, and the availability of cash is fast, with it being within 48 hours of the loan being agreed.