Our daily life is dependent on certain financial consumptions, taking loan or utilizing savings is the way to manage. Savings are accumulated earning, after fulfilling monthly expenses, surplus left is saved for future purposes. Crises management is done by utilizing personal savings and sometimes going for borrowing named as “personal loan” Financing. The easiest way in term of bearing the borrowing cost of loan is asking friend or family to provide you certain amount of money on credit. You provide your personal trust and security to avail this benefit unlike bank where you have to fulfill cumbersome requirements. Loan thorough personal borrowing is “unsecured loan” i-e lender has nothing else to rely upon except the promise and social reputation of the borrower. These are small to medium amount loan, taken for the purpose of expenses like travel, home decoration, buying computer, paying a monthly bill or in some cases managing any emergency expense like medical fee etc. In unsecured loan, lender is not provided with any specific lien on borrower`s asset. Although in the case of bankruptcy of borrower, lender can be compensated to an extent by taking court help, which will give them proportion of assets in realization but after assigning it to secured creditors. In different jurisdiction, unsecured creditors have different rights in case of bankruptcy of borrower.
Through court help, unsecured can go for following:
Seization of borrower`s asset or May take lien of any asset , which will prohibit that borrower from going into any other debt, unless previous payment made clear.
Some laws allow creditor to take half portion of borrower`s salary
In this way, unsecured creditors bear more financial risk than secured creditors. Eventually, interest rates of unsecured loan will be higher to minimize the level of risk involved. These loans have inflexible terms and conditions, simple means less chances to change and accommodate, still these are seen as affordable loan because of short-term liability.
Another benefit is: Repayment terms are easy to manage unlike the secured loans, which have small amount each month but at the end, gives long term hectic. Unsecured debt demands repayment in single or very few numbers of payments. In UK, now there are many banks or financial institutions offering personal loan financing; now you have better chance to shop around and choose for the cheaper interest rates. Quality of a good loan program is all its interest costs and payment terms associated.
There are different ways in which unsecured loan is being utilized, like credit card where you make payment after making a purchase, no financial security is offered to the creditor except your current bank balance.
Student loan is another type of unsecured loan, no personal asset`s guarantee is required from student. He/she may apply for student loan based on past financial records. Various financial institutions have different terms and conditions for granting unsecured loan and getting it repaid. Few want interest payment to be made only during the period of school or college. Make sure, scholarship and government grants for higher studies on the basis of merit are different that unsecured student loan.
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