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Unsecured Loans: The Good and The Bad

by Melissa Kellet • 2020-01-03

You need an immediate solution to a cash flow problem. You need an infusion of cash and you do not want to, or cannot, provide collateral to secure the loan. Your best option may be obtaining an unsecured loan. Before you decide, you need to understand a few things about unsecured loans.

Basically, such a loan is obtained from a lender without having to provide anything except some identity documentation and a signature. Of course, the lender is assuming a lot about you, mostly assuming you will not default. So there is some risk taking by the lender.

As with any loan, there are good sides and bad sides. If what you know so far is leading you to consider such a loan, evaluate the option more thoroughly and see if it fits your financial circumstances and even your life style.


No Collateral

Probably one of the best things about unsecured loans is that you do not have to afford the inconvenience, the time, nor the effort to prepare collateral for the lender, not physically, not legally. Also, should you default for whatever reason, you do not stand the chance of losing your home, car, jewelry, or other valuable assets.

Ease of Application

Ease of application is quite another good thing about unsecured loans. Traditional lenders have tightened their qualifications for most personal loans and scores of private lenders have stepped in. Most of these private lenders can be found online.

Go online and punch your browser with the key phrase: unsecured loan. You will be awarded with a plethora of lenders. Pick your top five and begin the application process. Minimum documentation is required. You will have results within minutes. Online application is great if you need cash fast.

Fixed Interest Rates

We all know that interest rates in the lending market fluctuate almost hourly and some personal loans are tied to those fluctuations. Of course, this means repayment amounts can fluctuate. With most unsecured personal loans the interest rate is set at the time of the application and payment amounts will not change.


High Interest Rates

The biggest disadvantage to unsecured loans is the interest rates they bear. Usually, no credit check is run on the borrower .You could find a lender who gives regard to credit histories and therefore get lower rates if your scores are good. This industry is highly regulated, so interest rates do not quite get into the loan shark realm.

Limits on Amount

The usual amount for a personal unsecured loan is around $500. Though they could be for as little as a hundred and grow to $1500. This will depend on the lender you seek out. So, these loans are not useful for buying a boat or putting a down payment on a house.

Pre Payment Penalties

These loans are paid back within a predetermined time period that is set by the lender in consultation with you. Once set, the contract is signed. Should you choose to repay early, you are cutting into the lenders interest rate earnings and an early payment fee is usually set.

Is an Unsecured Loan Right for You?

Now that you know the skinny of unsecured loans, it is up to you to decide to make an application. Before you sign anything, scrutinize the fine print carefully. It is an old warning but it should be heeded. As with any loan, you are putting your creditworthiness and integrity on the line. Pay back the loan as stipulated in your contract and your credit score will win and you lender will win. And you will have had the benefit of a cash infusion from an unsecured loan.

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