As with all things in life, there are pros and cons to taking out an unsecured loan. Despite the fact that you may be in need of money quickly, it is important to evaluate all your options before making a decision as to which loan product is best for you.
In this blog, we will be taking a look at the pros and cons of unsecured loans, those where you do not need any form of collateral to secure cash in your bank account.
Pros of unsecured loans
Unsecured loans have a number of things in their favour.
- Your personal property and assets are never at risk
Unlike secured loans where you need to put up some form of collateral to secure the loan, an unsecured loan doesn’t put your assets at risk. You can secure the loan without any collateral and if you default, which you should never do we might add, nothing will be taken by the lender to cover the loan.
Of course, defaulting may be beyond your control, such as if you get laid off from work but in that situation at least you have peace of mind in the fact that none of your assets can be taken.
- Simple application process
Unsecured loans are some of the easiest you can apply for. Most applications in fact, can be done online with a few simple mouse clicks. Of course, you will also need to provide a range of documents including proof of address, your identity document, wage slips for the past three months as well as bank statements. These simply can be emailed along with your application.
- Results in a matter of hours
Once you have applied you will know the results of your application in a matter of hours but definitely no longer than a day’s wait. Most unsecured loan lenders will let you know within two to three hours. The money is often paid to your bank account on the same day.
Cons of unsecured loans
Of course, there are cons to unsecured loans as well.
- Defaulting is not a good idea
Actually, this is a con for all loans but more often than not, if you default on an unsecured loan the lender will quickly take action to secure their outstanding money. This could lead to court appearances and costs for a lawyer. Make sure you pay your instalments in full and on time.
- Unsecured loan amounts are much smaller than secured loan amounts
Because there is no form of collateral tied to the loan, the amounts lenders are willing to borrow is much smaller. This helps limit the risk and cuts down on the percentage of defaulters by ensuring people can actually make their monthly repayments.
- APR rates are much higher than with a secured loan
Again, as there is no collateral, lenders will put higher annual percentage rates on their unsecured loan products. This is calculated taking the applicant’s credit record into account as well as the amount they want to borrow.
So there you have it, the pros and cons of unsecured loans. Always do your homework and make sure that you are getting the correct loan product for your needs. And please don’t waste the money! Taking out a loan to go on holiday or buy a bigger TV is never a good idea.