What Is An Unsecured Loan

An unsecured loan is a loan that your receive on the basis that your promise to pay it back. Your credit score is a major factor in determining your eligibility for a particular loan. A higher credit score indicates that you have done a good job paying back loans in the past. This means that you are more likely to qualify for an unsecured loan when you apply.

Advantages Of Unsecured Loans

The biggest advantage of an unsecured loan is that you don’t have to put up any collateral. This means that you don’t have to put any property up to secure the loan. This can come in handy if you are unable to pay back the loan for any reason. Another advantage of an unsecured loan is that the debt can be easier to settle if you do run into a financial hardship. Your creditors will want to get as much as they can in the event that you cannot repay the entire balance.

Disadvantages Of Unsecured Loans

The major downside to an unsecured loan is that you have to have good credit to qualify. A borrower with less than stellar credit will most likely have to look to other loan options. The risk involved with an unsecured loan may cause many lenders to not offer them at all.

Personal credit lines may be the only unsecured loans that most banks will be willing to offer. Therefore, you might not find an unsecured loan even if you qualify for one. Interest rates are often much higher for an unsecured loan. Certain income levels may also need to be met to qualify for an unsecured loan.

Go Unsecured Whenever Possible

Opt for the unsecured loan whenever the opportunity is offered. There is no reason to work hard for a good credit score if you cannot use it to your advantage. You never can be sure that the income you have today is going to last forever. A sudden job loss could render you unable to pay your loan back. If this happens, you might end up losing your home if you have a secured loan. Do your best to find an unsecured loan whenever possible. 

Unsecured loans are great ways to use your good credit to your advantage. A borrower with a good credit score could get an unsecured loan for an interest rate that is comparable to most secured loans. However, understand that it can be quite difficult to get a loan without collateral.