The Pros and Cons of Unsecured loans

Many lending companies offer unsecured loans in the market. A lot of people are enticed to apply for this type loan because there is no need to submit for collateral and even if you have a history of bad credit or if you have no credit, you can still get approved.

Nevertheless, this doesn’t change the fact that an unsecured loan subjects the borrower to the terms of his/her lender. Thus, to avoid possible complications or regrets later on, it is very important to weigh your options before applying for a loan. In this article, we give you the pros and cons of loans without security.

The Advantages of Unsecured Loans

Easy Approval. Unsecured loans are offered for everyone- tenants, students, unemployed, people with bad credit or no credit history can all apply for this loan and get approved without questions.

Quick Process. Compared to a standard loan, the application process is generally easy and convenient. You can submit your application online, get approved within minutes, and receive the sum of money you borrowed on the same day you get the approval.

Little Paperwork. Unsecured loans involve very little paperwork. You don’t have to prepare copies of your land title or home title and other documents to apply for this loan. Generally, you will only be required to submit a valid Identification to prove that you are of legal age, a proof of income and an active bank savings account in your name.

Fixed-interest rate. Unsecured loans have a fixed interest rate so you can be assured that your monthly instalment fees will never change throughout your repayment term. When comparing lenders, see to it that the loan comes with a fixed-rate, not a variable one.

The Disadvantages of Unsecured Loans

Higher interest rates. This is probably one of the biggest disadvantages of loans with security. To make up for the risk, lending companies do charge much higher rates than what they offer for secured loans. Even if you enjoy an excellent credit history, you may still be given interest rates that are slightly higher than standard loans.

Limited loan amounts. To avoid the risk of defaults, loan amounts offered are limited only. This is why unsecured loans are only meant to provide short term financial support. Unsecured loans are also not recommended to use as debt repayment.

Shorter repayment period. Unlike secured loans that come with longer repayment terms (5 years to 10 10 years), loans without security are restricted to shorter payment periods.

Pre-payment penalties apply. Your lending company makes profit from the additional interest rate charges imposed on your monthly loan payments. Your lending company sets the length of your repayment period or the number of months you are expected to submit instalments. Therefore, if you try to pay off your loan much sooner than the time frame you were given, you will be charged with a pre-payment penalty. Before signing up for an unsecured loan, a borrower must check the pre-payment penalty cost to ensure that it will be reasonable.