Unsecured loans are those loans that borrowed without using the property as collateral or security. Since unsecured loans pose greater risks to the lender, they tend to have higher interests rates as compared to secured ones.
If you do not have adequate equity in your home to back up your home equity loan, then getting an unsecured loan is a great option for you. If in any case, you do not make payments, the lender is allowed to go to court for you to pay him/her. Failing to pay him/her totally poses a risk to your credit rating. It may be damaged.Despite the fact that unsecured loans usually charge high interest rates, they still do have some benefits.
These benefits include
- It is a risk-free way of raising funds. Placing your property as collateral is risky in that, you are left with a threat of losing it any time if you do not pay the loan. The case is different with an unsecured loan; you have nothing to lose as far as your property is concerned.
- Less documentation and swift processing. Since there is no point of accessing your property as collateral, the process is usually fast. The paperwork involved is very minimal and hence quick loan processing.
- Short debt obligation period. Unsecured loans are usually short-range. This implies that you only repay your loan within a short time. If you remain faithful and pay your installments as required, then your obligation period lasts fast.
- A good option for urgent cash needs. Because processing of unsecured loans is fast, then this can be an option when you need money urgently.
- Borrowers with poor credit can access unsecured loans. You can still borrow money without security even if your credit rating is poor. One thing to note though is that if your credit rating is poor, you may be charged higher interests rates as compared to borrowers with good credit history. This, therefore, calls for you to compare the loan packages before accepting them so that you may choose the one with favorable interest rates.