No Property to provide as Collateral? Unsecured Loans to the Rescue!
By Sadiya Anjum
Unsecured Loans are loans which do not require the borrower to present any collateral to the lender. The loan is issued based on the simple promise of the borrower to repay the amount. These kinds of loans present a higher risk to the lender as he does not have any collateral to lean on in case the borrower defaults.
A credit card is a kind of unsecured loan. A credit limit is set against which a person can make any purchases up to the maximum value. Unsecured Personal Loans are generally a lump sum provided and are designed to suit the needs of the borrower. An unsecured loan can be put to any use like home improvements, weddings, vacations etc.
Unsecured loans can be obtained by just about anyone especially people who do not have a home of their own to offer as collateral. Even homeowners who are unwilling to put their home up as collateral can obtain unsecured loans. The criteria to get an unsecured loan include a good credit history and the guarantee of a steady income.
An imperfect credit history would pose a few problems when trying to obtain an unsecured loan. But it is not at all impossible. However the borrower in this case may be subjected to higher interest rates and difficult terms. Therefore it is wise to try and pay off some loans and make your credit report a little more positive before approaching a lender. Apart from credit history, a person has a better chance of obtaining a loan if he can provide proof of steady income. This will assure the lender to a certain extent that the borrower has the capacity to repay the loan.
Considering that the lender is not secured by any collateral, unsecured loans have several disadvantages attributed to them. The loan amount one can obtain is not as high when compared to a secured loan. Unsecured loans have higher interest rates attached to them as the lender is taking a certain risk. The repayment period (term) will also be much shorter. But considering that the interest rates are high, a shorter term will help you repay the loan faster.
The single greatest advantage of an unsecured loan is that in the event of the borrower being unable to repay, he does not have to suffer any risk of losing any asset. But this does not mean that the lender will not press any charges or pursue legal action if the borrower defaults.
As all loans go, it is best to borrow only if you absolutely need the money. You should borrow only the amount required and have a realistic plan that will help you repay your loan. When shopping for an unsecured loan, apply online and take your time to look around. Having several different offers may help you pick out the best one available for your needs.
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