Everyone who’s undertaken a course of study with only student loans to support them knows that it can be difficult to make ends meet when there’s only a few hundred pounds allowed to you to live on. Any student can obtain a loan from the National Student Loans Company, run by the Government, to help them with their ordinary living expenses. But banks are usually very reluctant to lend to students, because (unlike their parents or more senior borrowers), students do not usually have collateral to put up ‘against’ a loan. Luckily, there is an alternative loan format which often helps students. Unsecured loans, available from many locations on the high street and online, can provide the type of large cash advance that many students need to afford unexpected expenses such as a new outfit for an interview, holiday expenses, or replacement of a broken appliance or gadget.
Unsecured loans are at their most useful for people who, like students, have a dependable source of income (in the case of university students, the loans made to them by the Government), but do not own any property, such as a house, business, financial holdings or a car, which they can use as ‘security.’ ‘Security’ on a loan refers to an item of property held by the borrower, which becomes the property of the lender if the loan is not reimbursed in accordance with the schedule drawn out in the contract.
Obtaining a loan without security, then, seems very attractive to many people, as there’s no likelihood of losing a piece of property if the loan is not repaid. However, the lenders of these types of loan have to earn money from their transactions, and so there is an alternative pitfall which borrowers must be wary of. Unsecured loans are usually charged at a far higher rate of interest than secured loans. This is OK with a short-term cash advance (one which is paid back within a few days or weeks), and most students take out this form of loan because they have a date, set by the student loans Company, when they will receive a lump sum with which to pay the loan back. However, those who don’t have a definite source of income may find their interest payments becoming unmanageable. This kind of loan should always be treated with care.
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