The concept of lending and borrowing dates as far back as biblical times. It was the early Italian pioneers who transformed this into the more fluid, quantifiable exchange we recognise today. And exchange whereby they would set up benches in busy marketplaces to provide a central point to borrow money. They called these benches bancas, from which the word bank is derived. But are personal loans better then secured loans?
The problem with such transactions was that there was no central authority to regulate them, and lenders varied the interest rates. Thus, borrowers were subject to exploitation. That is not to say the world has reached the illusion of a perfect system in the centuries since. And the recent financial crisis was a traumatic reminder of the risks involved with any credit model.
Nevertheless, today the climate for borrowing money in the UK has become quite favourable. At least for those with decent credit ratings,. We can link this to the fact that interest rates across the board have plummeted since 2008. Factors such as natural economic factors and a lack of consumer confidence influenced this. They were root causes of this decline. However, as confidence as a consequence of the downturn were the root causes of this decline. However, as banks and building societies pulled up the drawbridge in terms of lending to consumers, HM Treasury launches its funding for lending scheme in July 2012. They offered them billions of pounds in loans at rates as low as 0.25 percent. The condition of this was that they lent this money out.
An important thing to note is that any examples of cheaper rates on personal loans are likely to be for amounts between £7,500 and £15,000. As there tends to be more competition within the market for loans of that size.
Interestingly, smaller personal loans often result in higher rates. This is partly due to the fact that the majority of defaults and bad debts arise due to one sector. Those who borrow smaller amounts of money. However, the more significant factor is related to larger lenders. Those who have high per loan administrative and underwriting costs. For them, smaller loans are not worth their while. And they thus generally look to deter consumers from borrowing at these levels.
This of course creates a niche for smaller, more nimble online peer to peer lenders like ourselves. We have lower overheads and are this able to fill the void.
It is a broad question with no straightforward answer. However, the virtues of personal loans for borrowers are plain for all to see. Aside from not being obliged to secure the loan against your home there are other virtues. Application processes, particularly with agile online platforms such as ours, tend to be convenient and expedient. Additionally, a select group of unsecured lenders, including ourselves, will not charge for over payments and early settlements. Most financial services firms have interest charges of up to 55 days extra for paying loans off early,. This presents a key potential saving for a loan seeker.
However, there is an important limitation on unsecured loans in that you can only borrow an amount ranging from £1,000 to £25,000, so for those looking to borrow more, a secured loan is likely to be the better option. Furthermore, those with credit ratings slightly below prime might be more likely to be approved for a secured loan given that the risk to the lender should be lower. And of course, despite recent trends, APRs on secured loans will usually still be lower too.
All in all, it is a personal choice which comes down to individual circumstances. What is important is to have a clear understanding of the pros and cons with each, and then discuss the terms with the lender so that you end up with a loan arrangement that works best for you.