The Pros And Cons Of Unsecured Loans

By Author: Groshan Fabiola
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An unsecured loan is an agreement between two or more parties that in which one, usually a bank or other lending company, will loan money to an individual without the individual needing to put up any assets as collateral for the loan. There are many types of unsecured loans, such as credit cards. One of the main advantages with unsecured loans is that there are companies everywhere that offer them. You can find them in banks or online. One of the biggest disadvantages is that an unsecured loan can be difficult to obtain if you don't have a good credit report. It's this report that lenders will rely on most heavily in determining your eligibility for the loan because they are considered high-risk loans. An unsecured loan may be right for you to help you with a temporary financial situation but you need to know the pros and cons before signing on the dotted line.

One of the main benefits of an unsecured loan is that unlike secured loans, you don't need to be a homeowner. A secured loan will readily provide a loan to homeowners because the home is put up as collateral should the individual default on the loan. For this reason, ...
... these types of loans are not available to those that do not own their own home. Another reason that unsecured loans may be appealing to some is that they provide a large amount of money in a short period of time, which can greatly help with financial burden during times of trouble. An unsecured loan can provide as much as $50,000 for a loan. Couple this with the fact that many unsecured loans have repayment periods as long as eight years and this loan option becomes even more attractive.

However, unsecured loans are not without their downfalls. Although they may provide a suitable amount of money for some circumstances, these loans are generally much smaller than secured loans due to the fact that there are no assets for the lender to take as repayment for the loan should the individual default. And the same is true for the repayment period. Although eight years is a significant time to repay the loan, a repayment period on a secured loan is much longer. The other disadvantage is that because these are considered risky loans by lenders, those with poor credit will find it very difficult, if possible at all, to obtain an unsecured loan. Because an unsecured loan is basically a promise between a company and an individual, the company will look at the individual's past financial happenings and determine from that if their promise can be kept. A bad credit report indicates that the person will most likely not repay the loan and therefore, the lender will turn the individual down. With a secured loan, credit history does not play as large a part because the person will be giving something in return for the loan regardless. Lenders can also be uncertain about granting high-risk loans in the first place and so, there will be large interest charges attached to the loan as well.

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