Financial emergencies don’t come with prior warnings. Sometimes you may find yourself in a situation where you need a sizeable amount of cash and fast. It happens so, when people are caught off guard like this they often don’t have the means to meet the demand personally. At such a time it can be an idea to apply for a short term loan and it is common knowledge that most banks demand collateral against any kind of financing. But what if you do not have collateral to offer? In such times it is best to apply for an UNSECURED PERSONAL LOAN.
In this article you’ll find a brief look at the types, merits and demerits of this kind of financing.
What is an Unsecured Personal Loan?
This kind of credit puts the lender at risk rather than the borrower. Here credit is issued to you without the guarantee of collateral, so even if you miss the timely repayment of it you do not risk losing any material property. Also the application of this kind of credit is not restricted by any rule; the credit obtained here can be invested in a variety of purposes. Nonetheless the amount available under this kind of a scheme is limited and the interest a little steep, though not as high as in the case of credit cards. This happens due to the concern of the lending institutions about their own financial security, as they put themselves at risk by issuing credits without any collateral guaranteeing returns. Thus, the issuance of it depends upon the credit worthiness of the applier. Even though you might not be required to always present a complete and detailed credit history still it will be favorable for you if you have a fairly high credit score.
Kinds of Unsecured Personal Loan- Apart from those offered by credit unions and banks under this name another type of such financing is considered to be cash advance loans. Both serve the same purpose of providing cash on a short notice for your present financial problem. Nonetheless obtaining approval for the latter is easier than obtaining clearance for the former as this type of a plan does not require a detailed previous credit history and also allows the borrower to acquire the credit needed without a co-signer. Companies like UnitedFinances.com offer such loans.
From the above mentioned points it becomes clear that such a type of a credit comes with certain important advantages. These are as follows:
- The absence of the need to provide collateral brings out the chief advantage of this scheme. This clause ensures that even if you miss out on the repayment, you don’t risk a chance of getting your property confiscated.
- The rate of interest charged here is considerably lower than that of credit cards. For this reason often individuals pick up unsecured personal financing to pay off other higher debts or credits.
Demerits of the scheme
Despite the benefits it offers there are also certain issues pertaining to the matter of applying for this kind of financing which needs to be deliberated beforehand. Following are some of the features of this kind of a plan which puts the borrower in a disadvantaged position:
- As there is no collateral to guarantee financial recovery for the lenders in case you miss the repayment, they will definitely ask you to provide documents assuring them that you will be able to pay them back, thus your credit worthiness will be checked too. So if you are in between jobs and have no stable source of income you will not be granted such a credit facility.
- Despite having lower interest rates than credit cards, this kind of a plan does charge a higher rate than other traditional forms of credit because it is a high risk plan and as mentioned above, there is no security or collateral.
Keeping all of these in mind you’ll have to decide whether this loan serves your interest best or not.
Author’s Bio – Sam Payn is a loan industry writer. He regularly writes for popular online loan communities like UnitedFinances.com and others.