The Pros and Cons of Unsecured Loans
There are a variety of different types of loans available to borrowers today. Unfortunately, since the circumstances and individual consumer need varies so greatly – there is not a one size fits all solution when it comes to unsecured loans.
What are Unsecured Loans?
Unsecured loans, also called personal loans, are those that rely on the credit worthiness of a borrower versus requiring collateral (examples include a home or vehicle) to secure the debt. Due to the more-risky nature of this loan structure, higher credit scores from the national credit bureaus are typically required for unsecured loan approval.
Unsecured loans come in many forms and may include some that you may already be familiar with and use. Here are some popular common unsecured loan types.
Examples of Unsecured Loans:
Unsecured loans are ideal for some situations, however, they aren’t the only option. Below are some pros and cons of unsecured loans so you can see if they’re a good fit to your financial situation.
What are the Pros of Unsecured Loans?
- You do not have to be a property owner with collateral to obtain an unsecured loan.
- The loan and application process for unsecured loans may take less time than those of a secured loan and is typically approved in a few business days.
- The interest rate on unsecured personal loans is typically lower than those on secured loans cards, potentially saving you money on interest charges each month.
- The monthly payments for an unsecured personal loan are set at a fixed rate, meaning that the payment is the same amount every month until the loan is paid in full.
What are the Cons of Unsecured Loans?
- Due to more risk to the lender, borrowers may find interest rates on unsecured loans to be higher than those on secured loans. The higher interest rates can potentially lead to higher monthly payments.
- A good credit report and steady income are required for unsecured loans.
- Loan amounts may be smaller than those available with secured loans.
- Instead of paying multiple minimum credit card payments each month, an unsecured personal loan defines exact payments due each month. To see your potential savings, check out our Credit Card Pay Off Calculator!
How to know if Unsecured Loans Are Right for You
Unsecured loans can be a convenient way to get quick access to cash. They are usually easily accessible and may offer an affordable solution for consolidating debt and paying off credit card bills, unexpected emergencies, and even home improvements and repairs.
Unsecured loans may not be the right solution for every financial need. For example, if you are considering an unsecured personal loan for a vacation or other non-essential purchase, make sure you consider the following:
- Can you afford an additional monthly payment?
- Are you fine with making loan payments for the next four to seven years on that non-essential item or trip?
Where to get Unsecured Loans/How to Apply
When it comes to unsecured loans, there are a variety of options available that may be a possible solution for you.
Applying at multiple locations may negatively impact your credit score. Start with your local credit union! They often offer the best interest rates, provide excellent service and may have fewer requirements for their members to qualify for an unsecured loan.
We can help!
Still unsure which solution is right for you? Please contact us to discuss your personal situation so that we can review your options, allowing you to make the right decision for you and your budget!