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Unsecured personal loans refer to the type of loans that need no collateral or any
other security deposit. It does not require any home ownership or any cosigners;
it is backed only by your signature (signature loan).
In the case of unsecured personal loans, the approvals are easier to obtain but lenders
charge a higher rate of interest as compared to secured personal loans that are granted
by placing your assets as collateral. The greatest benefit of a unsecured loan is
that there is no risk of repossession of your asset but the lender can take legal
action if you fail to repay back the loan.
Unsecured loans act as a great relief when you are in financial distress. You can
even obtain approval for an unsecured loan even if you have recently encountered
bankruptcy, repossession, judgments, foreclosure, liens, and/or divorce.
When a person
wants to borrow money without the risk of pledging assets with the lender, money
can still be borrowed through unsecured personal loans. These loans are particularly
helpful especially for the non-homeowners, tenants and students since they do not
have any assets to pledge.
Unsecured personal loans can be applied for any purpose like buying a home or a car,
funding a holiday, education costs, home improvement repairs, wedding expenses, or
for any combination of purposes.
Unsecured personal loans are typically given to the borrowers in the range of $1000
to $25000 depending upon your monthly cash inflow. To qualify for unsecured loans,
you should be an adult citizen, regularly employed and have a regular residence even
if it is rented.
Repayment tenure for unsecured personal loans is between 6 months to 10 years. The
type of loan selected by you at the time of taking up the loan decides the rate of
interest. Since there is no collateral being pledged with the lender, the lender
does not have any guarantee for the repayment and hence the rate of interest is higher
for unsecured personal loans.
Unsecured loans also mean stricter terms and conditions, and a shorter repayment
period, which can be a burden upon you. Even people with less-than-perfect or bad
credit history, can take up unsecured personal loans.
Although there is no risk of losing your security deposit with unsecured loans, it
is worth remembering that any failure to pay on time will adversely affect your credit
rating, making it harder to borrow in future.
Additionally, you are likely to be hit with late payment charges. Therefore, it is
wise to carefully check your monthly income and expenditure before deciding how much
If you decide to take up an unsecured loan, the Internet is a good place to start
your research and compare rates. By applying for unsecured loan online, you save
time with instant approval and less paperwork. And due to stiff competition in the
online financial market, you will also save money through lower rate deals. Use the
loan payment calculator provided by online lenders to help you determine what you
can afford as your monthly payment for your unsecured loan.
When you default on a secured loan, the asset you placed as collateral will be seized.
In the case of an unsecured loan, you may face a more drastic situation – bankruptcy.
Of course, you can attempt loan consolidation services or debt management program,
negotiation or other methods first. However, never forget if you are too much in
debt, bankruptcy will be the only option.