Short term loans are either secured or unsecured. There are a few lenders that have a flexible policy of accepting an asset as collateral that does not cover the total value of the loan but it is not a widespread practice. Secured short term loans require a substantial asset as collateral. One cannot use an asset that covers only a small fraction of the total value of a loan amount. Likewise, unsecured loans do not call for any collateral.
In theory and in practice, secured loans are always better than unsecured loans. The rate of interest is much lower. The terms are more favourable for the borrower. The lenders are more lenient with how they go about chasing defaulters. There is more stringent regulation for lenders as well. It is fair to say that borrowers have their rights and interests protected more effectively. However, unsecured short term loans have become more popular in recent times. Unsecured loans have been available for decades. Payday loans in particular have been available online for almost a decade now.
The Unprecedented Popularity of Unsecured Loans: Explained!
While secured loans are better on paper and in reality, there are some practical problems every borrower has to deal with. Secured loans are not readily available. They are harder to get. You can drive up to a private lender, use your car or other movable asset as collateral and get some money in exchange but the process still takes a while. Besides, such lenders are not based in every nook and corner of the country. Other types of secured loans, such as those where a house is used as collateral or bonds, stocks among other assets, including commodities like jewelry and antiques, take longer to process as the objects should be evaluated.
Secured short term loans are irrelevant in many situations. Since a substantial asset is being used as the collateral, the loan amount has to be sufficient and hence the lender takes their time to process. Many people do not need that much money. If someone requires a few hundred quid then using the car as collateral or pledging another asset makes no sense. Most people do not require thousands of pounds at a given time to tide over a crisis. A few hundred quid does the needful but it is not what secured short term loans provide. They are mostly about two thousand pounds or greater sums.
The technical process of applying, corresponding, getting approved and finally receiving the fund is long drawn and painstaking in many cases if you opt for secured loans. This is also a reason why more people prefer unsecured loans. There is a simple online application process. It takes a minute or two. Lenders send their quotes in email. The whole correspondence can be cut down to a few minutes. Many private lenders offer instant approval. It is indeed possible to get cash with unsecured loans in an hour. Most lenders these days ensure the cash is credited on the same day.