There are a number of loans available for specific purposes. For instance, an auto loan helps you buy a vehicle, a mortgage helps you buy a house, and a student loan helps you get education. While each of these loans meets one specific purpose, there is another type of loan which can be used for multiple purposes- An unsecured loan. More popularly known as ‘personal loans’, these loans are those that are not secured by collateral. In other words, you are not required to pledge your property/asset to avail these loans.
What are the uses of unsecured loans?
Unsecured loans can be used to meet any of your urgent financial needs such as wedding or vacation expenses, an expensive purchase, an unexpected medical emergency, home improvement, or even to consolidate your debts.
Are unsecured loans good for you?
Unsecured loans are very useful when you need funds urgently. Every year millions of Americans use these loans to pay for unexpected expenses, as well as to consolidate their credit card debts. However, this doesn’t mean that these loans are the best for everyone. Before you decide to opt for one, here are some facts to consider about why these loans may or may not be good for you:
|Unlike secured loans, these loans are not backed by collateral. And so your property/asset is not at risk in the event of a default.||Although there is no asset or property at risk, when you miss payments on unsecured loans, your credit score takes a beating. This in turn can affect your ability to borrow in the future.|
|Applying and getting approved for unsecured loans is relatively simpler compared to other loans. Most lenders are now accessible online and this makes the process less complicated.||These loans are typically smaller loans ranging between $1000 and $50,000. So if you are in need of higher amounts, these loans may not be suitable for you.|
|One of the most important benefits of these loans is that they are multi-purpose loans. These loans have no restriction to their end-usage. So they are very useful for meeting your instant financial needs.||Since lenders take the risk of loaning you money without collateral, they charge you high interest rates on unsecured loans. Therefore, your monthly payments are likely to be much higher than on other secured loans.|
Besides the merits and demerits of these loans, here’s another important fact you should remember- Your credit history is one of the major factors that determine your eligibility for unsecured loans. You are more likely to qualify for one if you have a decent credit score. Likewise, if you have a good credit history, the lender may even offer you a lower interest rate. So before you decide whether or not to opt for an unsecured loan, make sure you understand these loans thoroughly.