Unlike secured loans, unsecured loans are not attached to any collateral. In situations related to banks for example, if an individual defaults on an unsecured loan, banks have nothing to go after such as possessing your car, selling your house or ceasing valuable belongings. Unsecured loans are sometimes referred to as signature loans because all the bank has is an individual’s signature. These loans are obtainable online. Credit checks are often not required.
Since no collateral or credit check is involved, the lender is at risk. Unsecured loans are usually offered at higher rates and have lower borrowing amounts. Some prime examples of unsecured loans include: Payday loans, personal lines of credit pertaining mainly to credit cards, and student loans.
A payday loan, which is also referred to as a cash advance, is a short term loan that will typically be repaid by a borrower’s next paycheck. Payday loans are taken out by those in an emergency need of income before their next pay date. These loans should be taken out for extreme emergency situations. This is because the interest rates are astronomical. For example, if one borrows $ 100, one can end up paying 400 percent on interest alone; as such, payback is in the amount of $ 500. In most cases, approvals do require proof of job stability with a minimum of approximately $800 to $1000 a month for income.
Credit cards are unsecured cash loans. They do offer a revolving line of credit, which means that one can borrow monies until they reach their credit limit. However, the individual has to pay back a portion of the borrowed funds before they can borrow additional funds. High interest rates do apply.
Student loans are another form of unsecured loan. They may have interest rates attached to them or no interest. They can be taken out from private and or government sources. There is a high risk, that one can jeopardize their opportunity of going to college and graduating, when they tamper with pay-back requirements.
There are pros and cons that apply to unsecured loans. Unsecured emergency loans online are fast and easy to obtain without credit checks. Approvals are faster if one meets all requirements. Any form of collateral does not apply during the process. Drawbacks mainly include: higher interest rates that one must deal with, lower maximum borrowed amounts, and the interest rate on unsecured loans is not tax deductible.
Take time and research the individual establishments and all their loan requirements. Understanding unsecured loans, requirements, and their cons and pros is mandatory.