Unsecured personal loans for bad credit are offered less by banks and more by online loan providers who specialise in financing those with credit history problems.

For most bad credit borrowers in the UK, unsecured loans have been a constant source of funds. Higher expenses and lower income has been a problem for a large number of individuals today which makes it necessary for them to rely on personal loans.

An unsecured loan is a type of personal loan which is popular in the UK amongst tenants and borrowers who do not want to offer collateral. As a result the lender does not have a direct charge on an asset like a home which is one of the main benefits of an unsecured loan over secured lending.

 Unsecured personal loans are not supposed to be used for purposes where a higher amount of finance is required. These loans are instead used for emergency or smaller expenses. Lenders today are not willing to offer unsecured loans for a higher amount especially to people with bad credit.

As mentioned, these unsecured personal loans bad credit are offered by online lenders rather than banks. The main features of the loan tends to remain the same for all the lenders.

There are advantages to an unsecured personal loan. One of the main benefits  is the approval process is fairly swift. There is no property valuation which is the normal requirement of a secured loan. This alone means a considerable amount of time is saved.

Unsecured loans are preferred by borrowers with bad credit who typically require funds rapidly without complication. Also, most lenders today have websites through which borrowers can apply for the loan.

There is a short application form which has to be filled. Once the form is submitted, the lenders review the details and offer a quick decision.

Whether or not an unsecured loan is available to a borrower with personal credit issues depends on the policy of the company. There are high street banks that will immediately reject an application for someone with a poor credit history.

Selected household-facing interest rates(%) | source: Bank of England

Since the risk is always high with unsecured loans bad credit, many lenders do not want to take on additional risk by offering funds to such borrowers. As mentioned above, luckily there are specialist lenders who are willing to lend although they will charge a high interest rate for bad credit borrowers. The amount which is approved for such borrowers is also smaller.

Unsecured loans for bad credit are really popular in the UK and they can be a good way to handle unforeseen expenses in the short term.

What does the term unsecured personal loans bad credit encompass?

At the most basic level personal loans can be separated into those issued on a secured or an unsecured basis. As we know, secured loans are those with an asset such as a property pledged as collateral against the borrowing.

Unsecured loans do not offer collateral against the borrowing and therefore tend to be offered for smaller amounts.

Under this umbrella of unsecured loans are a variety of different loans categories. These include personal loans from good quality lenders such as HSBC at one end of the spectrum to Doorstep, Logbook and Payday loans at the other end of the unsecured spectrum.

Unsecured borrowing also includes credit cards and bank overdrafts.

The phrase ‘unsecured’ therefore encompasses a wide range of borrowing and is not quite so one dimensional as it at first seems.

For a useful overview of personal loans please feel free to watch the below video published by Lloyds TSB, one of the best known personal loan providers in the UK;  Dave Fleming, head of Digital Loans at lloyds TSB gives a useful insight on the subject:

Unsecured personal loans instant decision

Since there is no collateral pledged against an unsecured loan even if there is a situation where the borrower goes bankrupt, the lender is the last one to be reimbursed. Keeping this point in mind, it is understandable that poor credit loans are offered at a high interest rate. Furthermore, due to this higher risk, the loan size on offer is normally not higher than £25,000.

Current poor credit lending conditions in the UK

The UK economy is in great difficulty.  It is suffering because economies around the world are on the brink of collapse.  Other countries in Europe such as Greece, Spain and Italy are struggling to exist.  Unemployment numbers are high in almost every country in the world.

The UK is taking great caution in conducting any business with these countries.  The economy in England is far from stable.  There are debts, high unemployment and other issues.  Some citizens have been searching for jobs for months or years.  Countless stories layoffs and unemployment claims are surfacing on a monthly basis.

These economic woes began with banks collapsing in various countries due to bad loans and borrowers defaulting on payments.  Lenders tend to be more cautious and less willing to loan during these times.  Secured loans are only given after passing long credit and income processes.   The average borrower is turned down even if a large amount of collateral will be held.  Borrowers who seek unsecured loans will not have favorable terms.

They will be forced to pay fees and have extremely high interest rates.  This loan will last for a loner period of time and more money will be made by the bank than during times when the economy is normal.

They must have near perfect credit and income verification that shows that they will pay on time and have a stable job that pays far more than enough for the loan to be paid.  Various levels of underwriters, loan review teams and computer programs will sort through the loan applications and only find the very few applicants that do qualify.

In many cases, borrowers who are approved during economic down times in the UK will shop around with different lenders to find their unsecured loan.  They will only accept the loan that has the most favorable terms.  In many cases, they will wait for the economy to be better and then apply for unsecured personal loans instant decision.  This will allow them to find better loan terms in a more stable economic environment.

Currently, banks and lenders are overly cuatious in regards to every type of loan.  Unsecured loans to borrowers with bad credit are themost risky loans that they give.  This makes these loans to be almost never given out.

Banks fear a day that could come and force them to close due to losing too much money on loans wih no collateral.  Borrowers fear being taken advantage of by unfavorble terms.  The UK is not a good environment right now for poor credit loans to applicants with poor credit scores.