Understanding Unsecured Personal Loans

I would have to say that most teenagers are well versed in unsecured loans . To them unsecured loans are obtained whenever ready cash is required by asking a parent for money, on the promise of repaying it back interest free at a future date. A parent understands that the teenager can offer no security, or collateral, as it is sometimes referred to, so the loan to the teenager is basically an unsecured loan depending on the generosity of the parent, and their trust in the teenager.

Being an unsecured loan, it is a risky business for a company to lend without security and in some cases the debt is written off as a bad debt if the money cannot repaid either partially or in full . Circumstances usually beyond control of the borrower may prevent full repayment but in some cases the borrower displays no intention to repay. Either way the lending company has no security to rely upon as a means of obtaining recovery of the loan and the debt then faces recovery by the many means at the company’s disposal.

One must understand though even if a debt is written off, the debt itself does not vanish. When the teenager assumes his parent has forgotten about the unsecured loan given to them after a while ,rest assured that the parent has not. It may be forgotten for a while but sooner or later the parent will remember and instigate procedures for recovery. Unfortunately for the parent they are in the same boat as the company who lends unsecured and may have to write off the debt as unrecoverable after several years have elapsed.

While your parent may write off a hundred dollars or more the company that is forced to write off several thousand dollars of an unsecured loan may not be prepared to let the matter rest. As stated in the previous paragraph a written off debt still remains on a company’s books until several years pass before the statute of limitations applies and no further recovery action is possible.While a parent may not go as far as legal action a company almost always will right from the start of a default.

A person who obtains an unsecured loan will remember completing an application form in which a clause would have been inserted allowing that company to do various checks on employment and credit history. It is on that credit report where the lending company can obtain details of your approaches for credit and details of any legal action taken against that person . If a person’s credit history is shown to be unfavorable the company may decline to approve an unsecured loan. In most cases if a person is declined a loan as a result of poor credit history then that person has the right to obtain a copy of the report. Any errors in the report would have to be corrected by the company that noted the adverse credit and in some cases legal action can be taken against that company for listing that person as having adverse credit history if it can be proved that it was a malicious act.

You must bear in mind that your application may be declined for various other reasons besides poor credit history. Your income may be insufficient to properly service the loan repayment. Your occupation for instance as an apprentice may carry the risk that on obtaining your qualification you may not offered full time employment or not of sufficient length of time to undertake a loan. Remember too that a lending company is not in the business of declining loans so there’s every chance that an unsecured loan will be approved .

Once you have an unsecured loan don’t treat it as a joke but rather as a test of your ability to honor your promise to repay the debt in full with prompt repayment and no need for the company to send you endless reminder letters. In this computer age everything is recorded on company records. A computer does not forget. Treasure your credit rating . It will serve you in good stance for later on should you apply for a major loan such as a house loan.

Don’t wait for the company to chase you if you are unable to make repayments. Recovery costs are expensive and are added to your debt. Remember if you fail to make repayments the company has every right to take legal action and list adverse credit history on your credit report. Get in first beforehand. Notify the company of your problems and in most cases an arrangement can be made for temporary assistance until you are able to overcome your problems.

Consider your dad as an example of a lender providing you with an unsecured loan. Actually not so much of a loan as a revolving line of credit with minimum repayment and very little likelihood of having your credit rating destroyed as a result of default. Unlike your dad however if a company gives you an unsecured loan it is recorded on a computer that never forgets a thing until told to do so. There is every likelihood of having your credit rating destroyed if you default on a company loan.

Consider now giving a stranger an unsecured loan of two hundred dollars of your own money based on information contained in a loan application. Would you do it solely on the promise by that stranger to repay you at fifty dollars a month earned part time as a pizza delivery driver with no previous credit history? You would have to rely heavily on trust wouldn’t you, amongst other things.

So if you do obtain an unsecured loan, apart from legal action and bad credit rating, and if you evade your promise to repay the loan, there is little that can be done to force you to honor your promise. That is, if you consider legal action, ,the destruction of your credit rating, and the distinct possibility of never obtaining credit again as little. Unsecured lending to a large degree is based on trust; break that trust and you suffer the consequences. In any dealings with people, trust should be paramount in your mind.