Why is the Unsecured Loan Rates Very High?
There are many different kinds of loans that are available to a person who is in need of money. There are some loans here you will need to provide a security and these loans are called as the secured loans. On the other hand, there are some loans where you will not need to provide any security at all and these are called as the unsecured loans. It is always found that the unsecured loan rates are very high when compared to the rates that are charged for the loans that are secured. There is a simple logic behind this and every borrower needs to know this.
Reasons for the high unsecured loan rates:
- High risk: The risk that is taken by the lender is very high as far as the unsecured loans are concerned. This makes the loan to be very expensive. If you are in need of money and are getting a loan, then you need to make sure that you get a secured loan as the rates will be lesser. On the other hand, if you are not able to provide anything as security, then you will have to get the loan at high interest rates, which are higher than the rates that are offered by the lender for a low risk loan. The low risk loans are usually the loans that are obtained with gold as collateral or even a house deed or a car title.
- No security: There is no security provided by you for the loan and this is a serious problem for the lender. The main reason for this is that if you provide some security, the lender will be able to use it in case you do not repay the actual amount. There are a lot of middle class people who take these kinds of unsecured loans and they want to repay the loan amount along with the interest, but there are times when their financial problems overtake them and they are not able to pay back the money. So, in spite of noble intentions, many people are not able to repay and this is why the unsecured loan rates are very high.
- Cheaters usually use this loan: There are also people who use the loans to genuinely try to short change the lenders. These people apply for the loans and then do not even think of paying back the amount that has to be paid back to the lender. These are the genuine cheaters. Since the best method for them to cheat the lenders is the unsecured loans, they use this avenue. This makes the unsecured loans to be very risky for the lender and this is another of the reasons for the unsecured loan rates to be very high.
In spite of these problems that you face, you can try to reduce the loan rates through some means. The unsecured loans’ rates can be brought down considerably of you follow these tips and ideas.
- Address proof: If you provide the lender with your address, you will be able to ensure that the loan rates are lesser. This is mainly because of the fact that when you provide proof of your residence, then the lender will know that you may not try to cheat him as much as a person who does not provide address proof. So, make sure that you provide the address if you are a person who is planning to get an unsecured loan. This is one of the best methods in which you will be able to reduce the unsecured loan rates.
- Consolidate your loans: The other important factor that will play a role in reducing the unsecured loan rates is whether you know the lender and if you have dealt with the lender before. If you can try to consolidate the present unsecured loan with another loan that has already been secured by you, then it will help the lender. This is another simple method, but a very effective one through which you will be able to get a reduction in the unsecured loan rates.
In spite of the high loan rates, there are a lot of people trying for these loans. The reason is that many do not have any assets that they can use as collateral. The other reason for people not trying to use the various assets as collateral is that they are scared that if they are not able to repay the loans, then the lender will take away their assets. So, they would rather pay high unsecured loan rates than try to reduce the rates.