Unsecured loans are available to you as long as you meet the requirements set by the lender. Some have a complex application process and some are quite easy. This depends on the lender and the amount borrowed. Larger amounts take longer to process than smaller ones that can even be done in one day. If you maintain a good credit score then you possibly can get an unsecured loan from any lender but do some research on their Terms and Conditions first before accepting a loan.
Unsecured loans can be very beneficial in helping you solve a financial issue as quickly as possible. The fact that you don’t need collateral to secure the loans is a huge pro for this type of loan. Still, this is not to say this type of loan is free from pitfalls. You have to weigh the advantages and disadvantages of unsecured loans before you apply for one today.
Advantages of Unsecured Loans
1. Available to All
There are some types of loans that are only available to certain groups of people and closed off to the rest. This is not the case for unsecured loans that are available to anyone who wants to apply. You don’t require a running business, employment or other qualifications to get this type of loan.
All you need to prove that you qualify for it is a good credit score. With that, any lender will be happy to give you the amount you request for. Depending on the amount, the duration for processing might vary but that doesn’t mean you won’t get the loan if your credit score is sound. Anyone can borrow an unsecured loan.
2. No Collateral
Unsecured loans don’t require you to provide an asset as collateral in case you aren’t able to repay the borrowed amount. This is the main hindrance why many people don’t go for other types of loans available. With an unsecured loan, all you have to provide is creditworthiness and you’re good to go. You won’t even have to put up your assets as collateral if you have any.
3. Can Be Used for Anything
Other types of loans are specific about their purpose and you must adhere to this. For example, you can’t use a car loan to pay off your mortgage. With an unsecured loan, there is no specificity for its purpose. You can use it for personal matters or business as there are no restrictions on its use.
Still, keep in mind the reason you took the loan in the first place. Have a plan first before you go applying for one and stick to it. Don’t get a loan to pay off the mortgage then go on holiday instead. In the long term, an unsecured loan may affect credit score.
4. Debt Consolidation
You might find yourself in a financial bind and have no other way of coming up with the required money. This is why personal loans are important and lenders provide them. You can use a personal loan. For example, to pay off your credit cards meaning you can now use your cards for other matters. Take caution though not make large purchases or transactions once the cards are paid off for this can only plunge you deeper into more debt. In no time you might need a larger loan and the cycle turns vicious.
Disadvantages of Unsecured Loans
1. High-Interest Rates
Remember the only assurance a lender has while issuing you an unsecured loan is a good credit score and your word that you can repay it in the given timeline. If you don’t repay it on time, a loan could be bad for your credit score. This is not enough and that’s why these types of loans are charged high interest rates. You end up paying much more than you would with a secured loan. Weigh whether taking a high-interest unsecured loan is the best thing or not before you apply for one.
2. Additional Charges
The truth is, you have to pay origination fees to get an unsecured loan. These are fees charged by the lender to process your loan. The additional fees are paid back to the lender in two ways. You can have them deducted from the total amount of loan you receive from the lender. Another way is to have the origination fees added to the total amount you’re paying back to the lender. This means you have to pay more per month.
3. Small Amount Obtained
When you use collateral to get a secured loan, the amount you receive can be as large as the collateral secures for you. The same doesn’t apply to an unsecured loan. There is a limit to how much you can get which is usually low. This is money you use for small financial matters and not big ones like buying a house or starting a business.
You can be blacklisted if you stall your payments or stop paying the debt altogether. Unsecured loans cause huge changes to your monthly budget and can see you pay much more per month. This strain leads to stalling or missing payments. This leads to the lender blacklisting you and it can be hard to get another loan from another lender in future until you clear the first one with all the accrued interest.
5. Early Repayment Penalties
Find out if your lender accepts the early repayment of the whole amount before you apply for a loan. Some lenders charge a penalty fee if you repay the whole amount earlier than the specified timeline. You need to get this clarification before you borrow a loan to avoid additional charges later on when you decide to pay it off all at once.
Unsecured loans serve a huge purpose in helping you come out of a financial bind. They have advantages in that they don’t need collateral to secure and can be easy to process. But it’s not all roses as there are certain disadvantages to unsecured loans. You get charged a high interest rate which means your monthly installment is high too. Now you are ready to choose a loan from the Best Unsecured Loans reviewed.
If you wish to repay the whole amount at once earlier than agreed, some lenders charge you a penalty fee which adds more to the amount you’re paying back. Weigh both before you get a loan.