Whenever someone is looking for the right kind of loan to suit their financial needs, an unsecured loan is one of the many options they are bound to come across. One of the most popular uses for this type of loan is settling credit card balances in order to save on costs on interest, debt consolidation, or fund home renovations.
Known for ease of application, personal loans can provide an opportunity to access cash for those who do not wish to or cannot use security to get a secured loan. But there is plenty to learn about unsecured loans than just the security aspect, and that is what we are going to do in this blog post.
What is an unsecured loan?
An unsecured loan is simply any loan that is not backed by an asset in the form of security. It is the opposite of a secured loan, which is covered by collateral such as bank account balances, your home, or your vehicle. To use collateral to obtain a loan means the lender or bank has the right to repossess that asset in case you default on repayment.
This means secured loans can end up costing you more than just the interests.
But in unsecured loans, lenders rely on your creditworthiness as well as income and job situation, and because of this, this type of loan is often referred to as a personal loan or signature loan since they are usually approved with only a signature in most cases.
Characteristically, borrowers must have decent credit scores to get approved for any kind of unsecured loan. And since this is the case, lenders tend to allow borrowers with lower credit ratings to provide a cosigner or guarantor, who assumes the legal responsibility to fulfill a debt in the event the borrower fails to repay. This happens when a borrower is unable to repay the principal and interest of a debt or loan.
If a borrower fails to pay a secured loan, the creditor can assume possession of the asset pledged as collateral. On the contrary, if a borrower fails to repay an unsecured loan, the creditor (lender or bank) cannot repossess an asset; however, the lender can use any of recovery methods such as sending a collection agency on their behalf to collect the outstanding or in a severe situation, take the borrower to court, where if the court ruling is in favor of the lender, the borrower’s salary could be garnished.
A lien may also be placed on the home owned by the borrower or otherwise, he/she may be ordered to repay the loan.
What are the advantages of unsecured loans?
Unsecured loans can be very advantageous if taken under proper circumstances. These loans may benefit you in a number of ways such as:
Help you build credit
Unlike secured loans that involve long repayment installments, unsecured loans involve regular, monthly repayments, which are reported to the major credit bureaus – TransUnion, Equifax, and Experian. This means that if you consistently make payments on time, this can boost your credit score.
On the flip side, it also means it can ruin your credits score if you default or make late repayments, damaging your chance to access a loan in the future.
Allow for debt consolidation
Loans for debt consolidation allowing borrowers to restructure their finances by repaying all loans as well as credit card balances using just a single unsecured loan.
Additionally, it also reduces the number of monthly installments you have to look out for as well as leading to a lower interest rate in general if your credit improves since obtaining the last loan.
Direct lenders who specialize entirely in debt consolidation can directly repay your other loan rather than disbursing funds to your account.
Simpler application process
Since there is a breadth of other lends besides credit unions and banks that offer unsecured loans, the application process is getting simpler than how it was a few years ago. You can apply for a signature loan from any p2p lending platform from the comfort of your sofa and you get approved in less than 24 hours.
There are no complicated requirements, whether you get approved or not depends majorly on your credit score and credit history.
No risk to private assets
Since this is an unsecured loan, you do not have to worry about losing your personal property in case you default on the loan. Your home or other personal assets will not be repossessed by the lender if you lose your job and making regular on-time payments is not applicable anymore.
Flexible repayment plan
Most lenders providing unsecured loans are flexible when it comes to repayment. Early repayment may be a burden to small businesses that have obtained the loan for capital. But unsecured loans for businesses offer some flexibility in the repayment plan, making it ideal for small businesses.
The documentation for unsecured loans is very minimal and there is no time-wasting paperwork involved. Borrowers can submit the required documents online, after which the lender will process the application within 24 hours. Both the application and approval is convenient and simple, allowing for the funds to be approved and distributed quickly.
Quick fund disbursement is one of the key advantages of unsecured loans, making them an ideal financial solution for small businesses and personal emergencies.
Why Choose Us For Unsecured Loans
Working with us for your unsecured loan need comes with a myriad of benefits, including the following:
Once you have successfully completed your application online for an unsecured loan, the money will be in your account as soon as possible. We are not like some lenders who take days to approve and a couple more days to disburse the money.
High rates of acceptance
With a wide range of lenders waiting on the wings for your loan application, we are sure we can find you the right unsecured loan for your financial need.
We do not store your sensitive information online, therefore there is no risk of your private information being misused or stolen. Our partners run secure platforms to ensure your safety online.
Despite the ongoing pandemic affecting the loan market, unsecured loans have grown significantly in the past two years. With all the advantages of unsecured loans, you should consider applying for one today.