How risky is unsecured borrowing?

Risk of unsecured borrowing

George Osborne’s Autumn Statement wasn’t quite the axe-wielder we might have expected, with anticipated cuts largely avoided in an unexpectedly generous forecast of spending in the coming years. However, while it offered us some relief, Government has yet to offer up any grand solutions that will mitigate the enormous costs of living currently facing Britons.

Inflation may be stable and low, but it can’t disguise the overwhelming costs of rent and housing eating into our monthly budgets. Long-term solutions to juggle our finances should obviously be the first priority, but a helping hand is something many of us need to turn to now and then.

The question is, how advisable is it to pursue unsecured credit to find a remedy, and what purposes are justified for taking out personal loans?

Alternative finance platforms leading the way

The latter is a subjective question, but also one with a variety of answers. The reality is that the landscape for borrowers has changed considerably in recent years, owing largely to increased diversity and competition that has come with the online age.

As a result, personal loans are increasingly being used for more progressive reasons like consolidating debt, making renovations, DIY home improvements and car finance, while use for holidays and events such as weddings are also growing in popularity.

Much of this is down to the eroding stigma surrounding debt, highlighted by the rise of agile online providers, many of whom can offer value at odds with the inefficiencies and high-cost loans associated with banks.

A major player among these alternative platforms are peer-to-peer (P2P) lenders, which use a unique but simple business model which takes the funds of ordinary consumers who elect to lend their savings, and directly matching it up with creditworthy loan seekers on a pound-for-pound basis. No intermediaries come into the equation, and the online functionality ensures a dearth of overheads for these platforms.

As a result, borrowers (and lenders) benefit from the value this streamlined process generates, with APRs for loan applicants comprised of competitive interest rates for most credit ratings and only a small fee for the credit checks conducted by the platforms’ credit analysts. But this process is in itself swift and efficient. Applying online takes all of a couple of minutes, and the necessary credit checks are completed within a working day. So that means successful applicants can expect the funds to arrive within 48 hours of applying.

Aside from good value and expedience, there are other benefits to be had too. Applicants have the flexibility to choose both the amount they wish to borrow (up to £25,000) and the length of time over which to make the necessary repayments (1-5 years). In addition, some platforms like Lending Works give their borrowers the freedom to make early settlements without being charged a penny.

Look at the bigger picture

Such types of loans give you the option to, in essence, design your own repayment plan; one that works for you and with the room to pay off your debt sooner than expected if you find yourself in such a position.

P2P platforms are not the only lenders to be offering good value though. Indeed, in these times of record low interest rates and advancing technology, the climate for borrowing is as consumer friendly as it ever has been and there are many good deals to be found.

However, take note that the most suitable loan, while centred on the APR, involves other factors too, so when doing your homework to find the best provider, be sure to look at the overall picture, and take into account the fine print. It should thus come as little surprise if, after doing so, peer-to-peer lending platforms emerge as the ones to tick all the boxes

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