What is an Unsecured Personal Loan?
Personal loans have become the most sought after loan option among borrowers because they include many benefits. One of the most important benefits of these loans is that they offer total financial freedom for the borrowers, and the loans can be used for any type of expenditure.
There are two major types of personal loans: Secured personal loans and unsecured personal loans. Both have advantages and drawbacks.
Secured Personal Loans
For secured personal loans, borrowers need collateral. This collateral (usually one's home) is used against the amount borrowed. However, the risk of losing ones property if they fail to repay the loan is a stark reality. However, borrowers do qualify for a greater loan amount and flexible repayment options. Borrowers who do not have any property to place as collateral can certainly consider the option of unsecured personal loan to finance their needs.
Unsecured Personal Loan Facts
In an unsecured personal loan a borrower does not need to give the lender any kind of collateral in the form of a home or any other property. The borrowers can have the personal loans solely on their repayment capacity and hence it is the most sought after personal loan option among borrowers. In the event of a failure to repay the borrowed amount on the part of the borrowers the lenders cannot claim the property of the borrowers. This is the reason why the unsecured personal loans are also called as risk free loans. Unsecured personal loans are most useful for borrowers who do not have a property of their own or who live in a rented house. The unsecured personal loans are also available for borrowers who have a bad credit history and it offers them an opportunity to improve their credit history. While giving the unsecured personal loans the lenders take into consideration the income that the borrowers earn and if it is enough to repay the borrowed amount. Hence the higher the income of the borrower the greater the amount they can borrow through the unsecured personal loans.
Since there is no collateral needed in an unsecured personal loan, lenders charge a greater rate of interest to compensate for the risks involved. However the loan amount that borrowers can expect from the unsecured personal loan is comparatively smaller than that of a secured personal loan.
Unsecured personal loans are a shorter duration, and the repayment terms can range from 1 to 10 years. Even though the unsecured loans are more expensive than the secured loans, the amount borrowed can be put to any use as there are no restrictions attached.
Borrowers must be cautious, however, because even though these loans are risk-free - the failure to repay the loan may result in legal action. In order to obtain the best rates and repayment terms, borrowers can shop around for unsecured personal loans and find the best deal that suits their pockets.
PayDay loans are the best type of unsecured personal loans that borrowers can have.