Warning: Late repayments can cause you serious money problems. For help, go to moneyhelper.org.uk. We are a broker not a lender.
Warning: Late repayments can cause you serious money problems. For help, go to moneyhelper.org.uk. We are a broker not a lender.
Nov 27, 2019
Loans are regulated by two sets of regulations. The first set is the rules of the regulatory authority. The second set is the clauses as stated in the loan agreement. The first set of regulations is approved by the government and implemented by its agencies. The second set of rules is implemented by the lender. It should be noted that the two sets are correlated in many ways. The second set of rules is subservient to the laws of the land. However, lenders have enough room to have their own regulations, as long as they do not breach any relevant law.
Those who have had a mortgage, car loan or other types of secured loans are aware of the flexibility offered by banks and financial institutions. These loans can be reworked. Restructuring, refinancing, amending the terms and other types of interventions are possible. It is mostly a borrower who requests for such amendments as and when desired. Lenders can also be forthcoming with recommended changes to make necessary corrections, at times to make it easier for a borrower to repay and on other occasions to make more money. These flexibilities do not exist when you opt for unsecured installment loans.
Rigidity of Unsecured Installment Loans
You can seek an amount, get approved, receive the money and have a repayment term, say of ninety days. You cannot change anything about this loan. Even if you have a repayment term of six months, you cannot do much about the clauses, the monthly installment or the total due. You have to keep repaying till the full loan amount is repaid along with the interest. Some lenders offer the option of extension or renewal. This can happen only when the repayment term is up or nearing its end. You cannot seek an extension of a repayment term of six months when you are in the third month. This rigidity is not unique for unsecured installment loans. Secured loans also have such rigidity.
One of the major shortcomings in the clauses of unsecured loans is the lack of an option wherein a borrower can repay the full loan with interest in advance. There are people who manage to save enough money to repay the whole loan before the repayment term is up. A twelve month repayment term can be reduced to nine months. Six months can be reduced to four months. Lenders offering unsecured loans do not provide such an option to its borrowers and hence one must continue repaying the usual way till the very end.
Flexible Repayment is an Exception
Some lenders have the provisions in their agreements wherein unsecured loans can be repaid sooner. These lenders allow borrowers to discuss possibilities and both parties can arrange an earlier repayment of the loan. This may lead to reduction of cumulated interest in some cases. Lenders want to recoup their investment and secure a profit through the interest accrued. Early repayment assures them a return. But such flexibility or even the option to repay before the term is up is an exception in unsecure lending.