When you take out a loan, you have two main choices: unsecured or secured. Secured means you give up collateral for that loan. If you don't pay, the bank takes whatever you listed as collateral. Unsecured loans have higher interest rates, but you don't risk having the bank take your car, home, or other collateral from you if something happens (lay-off, medical emergency, etc.) and cannot pay as promised. There are distinct benefits to an unsecured loan.
You Don't Forfeit Important Assets
Most secured loans require you to put your home or car on the line. No one can predict when an emergency will occur. If you suddenly cannot pay your secured loan because your company laid you off or illness or injury is keeping you from work, the bank has the right to evict you from your home or take your car from you.
Without a home, you'll be forced to live with someone else or, worse, on the streets. Without a car, getting to work (providing you still have a job) or driving to job interviews is impossible. Unsecured loans are the safer alternative. If you don't pay, you don't risk losing a roof over your head or means of transportation.
Interest Rates Are Often Lower Than Credit Cards
Unsecured loans often have lower interest rates than credit cards. Too many people rely on credit cards for emergency funding. Many credit card companies charge rates of 20 to 30 percent, so the interest you pay is extremely expensive in the long run. With unsecured loans, you can get rates under 10 percent, providing you have a good credit score. Compared to a credit card, you end up saving a lot of money.
Specific Payment Terms
With an unsecured personal loan, there are specific loan terms. Your payment is set to be the same amount for three or five years. Unlike credit cards, the interest rate is fixed for the length of the loan. You won't find your monthly payment fluctuating regularly, so there's never any question on how much you are going to owe that month. If you get a raise and can afford to pay more, you don't have to worry about being fined for paying off your loan early or for making more than one payment per month.
Take hold of your financial future by using an unsecured personal loan to consolidate credit card debt or borrow money for an unexpected emergency. You have peace of mind knowing your financial needs are covered without spending a fortune on credit card interest.