Everyone who’s set out on a course of study with only student loans to support them knows that it can be tough to make ends meet when there’s only a few hundred pounds handed out to you to live on. Any student can get a loan from the National Student Loans Company, run by the Government, to help them with their day to day living expenses. But banks are usually very reluctant to make loans to students, because (unlike their parents or older borrowers), students do not usually have collateral to put up ‘against’ a loan. Luckily, there is an alternative loan method which often works for students. Unsecured loans, available from many locations on the high street and on line, can provide the type of large cash advance that many students need to cover unexpected expenses such as a new outfit for an interview, holiday costs, or replacement of a broken appliance or gadget.
Unsecured loans are at their most useful for people who, like students, have a regular source of income (in the case of university students, the loans made to them by the Government), but do not have any property, such as a house, business, stocks and shares or a car, which they can use as ‘security.’ ‘Security’ on a loan refers to an item of property belonging to the borrower, which becomes the property of the lender if the loan is not repaid in accordance with the schedule drawn out in the contract.
Taking out a loan without security, then, seems very attractive to many people, as there’s no danger of losing a piece of property if the loan is not repaid. However, the lenders of these types of loan have to make money from their activities, and so there is an alternative pitfall which borrowers must be careful of. Unsecured loans are usually charged at a far higher rate of interest than secured loans. This is fine with a short-term cash advance (one which is paid back within a few days or weeks), and most students use 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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