With the lending market becoming more flexible, financial experts have predicted a happy scenario for the customers. They claim that interest rates have never been so competitive and customers are enjoying the full benefit of that. But even then, quite a substantial population of the UK population is groaning under the pressure of exorbitant monthly payments. If the interest rates are really so competitive then how come customers are shelling out such huge payments every month?

Every financial institution will have its own reasons as to why clients are paying through their nose. It might be anything from bad credit score to the kind of loan taken. The loan type plays a huge role in determining the kind of interest charged. Normally, loans that are obtained against security of some sort have low interest rates. These loans are called secured loans. In fact, customers have the choice of deciding on fixed, capped or flexible interest rates.

On the other hand, loans procured without the need of pledging anything against it are called unsecured personal loans. These loans have a high interest rate associated with it. There is a fairly simple explanation behind it: no collateral translates into no security for the lender. To cushion any probable fall, lenders charge a high interest against the loaned amount.

But, inspite of having a steep payments associated with it, unsecured personal loans are still a popular loan product in the UK. This is because not everyone has an asset at their disposal that can be placed with the lender. Also, people may not want to risk their homes for a loan. Because one of the biggest disadvantages of a secured loan is that in case of repeated missed payments, lenders may take over the borrower’s home to make up for the principal amount.

Loan seekers opting for unsecured personal loans can borrow up to £25,000. As this loan comes with less documentation, it is also processed much faster. So, in a way, it compensates for its other disadvantages.