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Benefits and Drawbacks of Unsecured Loans
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Posted On :
Dec-19-2011
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Article Word Count :
533
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Extra funds help to meet our financial, personal and professional goals. Loans can be acquired from places like mortgage companies, credit unions, banks and even from friends and relatives. When you apply for a loan you also need to know its type.
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Extra funds help to meet our financial, personal and professional goals. Loans can be acquired from places like mortgage companies, credit unions, banks and even from friends and relatives.
When you apply for a loan you also need to know its type. There are two types of loans: secured loans and unsecured loans. Loans that need collateral are called secured loans; loans without collateral are called unsecured loans.
Unsecured loans for bad credit are backed by pros and cons. Weigh them carefully before deciding whether is good or bad for you.
Pros
The obvious benefit is you won’t have to pledge your assets with a finance company or bank for exchange of funds. It is suitable for those without valuable assets. If a borrower fails to repay the loan in time due to unforeseen circumstances, there is no worry about claiming property and assets. When you know your property and assets are safe there is peace of mind
Another advantage of unsecured loans is its all-purpose use. Borrowers can use the proceeds from unsecured loans any way they want to, on the other hand secured loans can be used only for the stated purpose.
Unsecured loans can get approved instantly, as they do not need any collateral. It is therefore useful during times of emergency.
Cons
Unsecured loans UK work out expensive – higher interest rates and loan fees help the lender offset only bad loans from their portfolio. Moreover unlike secured loans, unsecured loans come with restrictive terms. Since it is prone to greater risk, lenders hesitate to provide the borrowers with longer repayment duration and put more money at risk. Thus getting huge amount of money becomes hard during pressing times. It is not suitable for those in immediate need of huge monetary funds.
It is hard for those with low credit to qualify for an unsecured loan. So, although approval is instant and quick, rejection rate is higher, thus a majority of people fail to obtain unsecured loans for bad credit.
Unsecured loans can push borrowers into long-term debt. An individual’s economic situation deteriorates during the duration of the loan, so they need to have some plan in mind for making the repayment. Since such loans are not backed by any security, borrowers could get casual when repaying it. They end up paying just the minimum amount or late fees sometimes. Those who are the least bothered about improving their credit score turn defaulter once again.
The advantages attached to unsecured loan are the same as with other loans. Beyond that the disadvantages of unsecured loans out-number the disadvantages of secured loans.
Conclusion
But for those who are unable to arrange a collateral, unsecured loans are the best option. It is the only choice non-homeowners and tenants have. As with other loans, understand the terms stated in the loan agreement, make sure they fit into your needs even if unsecured loans seems to suit your circumstances. The pros and cons of taking an unsecured loan will vary with every individual and the circumstances faced by him.
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Article Source :
http://www.articleseen.com/Article_Benefits and Drawbacks of Unsecured Loans_121004.aspx
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Author Resource :
Mike John is a well known Financial Consultant. He provide useful advice through his articles on Unsecured loans, Personal Loans and Bad Credit Loans.
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Keywords :
Unsecured loans, unsecured loans uk, unsecured loans for bad credit, unsecured loan,
Category :
Finance
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Loans
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