The Pros and Cons of Unsecured Personal Loans
An unsecured personal loan means that you are able to take a loan without having to put up any collateral. In order to qualify for an unsecured personal loan, you will need to have an adequate income, a good credit score and prove that you are worth the risk.
Here are the pros and cons of an unsecured personal loan.
No Risk To Personal Property
With an unsecured loan you won’t have to put up any collateral to get the loan, which means you are not risking any property even if you default on the loan.
You will then not have to worry about losing any assets or your home.
Simpler Application Process
There are lenders apart from credit unions and banks that offer personal loans, which make the process of getting a personal loan easier.
You are able to look at securing a personal loan with a peer-to-peer lending sites for instance and this offer 24-hour approval.
Loan qualification for a personal loan will depend on your credit score and your credit history. You will also need to prove that you have a regular income that is able to cover the cost of the loan.
The Lender Could Come For You
Even though an unsecured personal loan is not backed by collateral, a lender is still able to place a lien on your assets so that they are able to secure repayment.
A lender can obtain a lien by suing you and taking you to court.
Not only will you have to pay for the loan amount and any late fees, you could also be forced into paying court and attorney fees.
This will also have a negative affect on your credit score and your salary could also become garnished.
Loan Could Be Smaller
Lenders make money by charging an interest on the loan, but if the loan is not repaid then there is no profit.
Lenders will then attempt to reduce their risk. Lenders will check credit reports; verify employment and can also limit the amount of money that you are able to borrow.
Payments are Higher
Unsecured loans are riskier, which means that lenders charge a higher interest rate. The interest rate you are charged will depend on your credit score and the amount you want to borrow.
As you are charged a higher interest rate, your monthly payments will also be higher. Also if you have a longer repayment period, you will be paying more.
Unsecured loans do have their advantages, but they also have disadvantages. It is a good idea to shop around for a personal loan and ensure you understand all the underwriting of the loan.