5 Benefits of Applying for an Unsecured Loan

Whether you’re dealing with a sudden emergency, or you want to fund a new venture, there are a number of financial products and credit services that can offer the funds you need. The right personal loan could open dozens of doors for you, but what is the ‘right’ personal loan? Well, for many people an unsecured loan is the most desirable option. Here’s why:

Secured Vs. Unsecured Loans

To put it simply, a secured loan is one that has an additional or external guarantee of repayment in the form of a co-signer or some form of collateral. In the first case, you will need a person with fair or good credit to guarantee the loan on your behalf. While you will be the main recipient and the person initially and ultimately responsible for the debt, if you are unable to pay for any reason, your co-signer will be held responsible for the debt.

In the second case, you will need to put up an asset of comparable (or higher) value to the loan as collateral. If you fail to pay, the lender reserves the right to take possession of the asset (usually a car or home, but sometimes valuable jewelry or collectibles can be offered) to cover the debt.

An unsecured loan, by contrast, is a loan whereupon you are the only debtor and your agreement to repay is sufficient for the lender to agree to provide funds. In all cases, you will also pay interest and face damage to your credit score (as well as legal action) if you default on your payments.

5 Key Benefits of an Unsecured Loan

Undertaking an unsecured personal loan has a number of long and short-term benefits that make this an attractive option for those who are able to gain one on favorable terms. These are the five key benefits of an unsecured loan that you should consider:

  • Cost-Efficiency

An unsecured personal loan is far more likely to give you an affordable, reasonable APR than a credit card will if you have a credit score that is fair or on the lower end of ‘good.’ A personal loan is also more likely to offer you the option of a large lump sum of credit. While it is common to have a personal loan of around $10,000, for example, many credit cards will not offer this amount of credit at first application (unless you have the income to warrant it).

  • No Collateral

The need to provide collateral is one of the main downsides to other forms of personal loans. An unsecured loan does not require assets as collateral or a guarantor. While these forms of loans may be more accessible for those with poor credit, they also complicate the application process and can be hard to secure if you cannot provide a suitable asset or your co-signer cannot guarantee the amount you wish to borrow.

  • No Usage Restrictions

Some forms of traditional credit restrict what you can spend the money on. The most common form of loan to do this is a mortgage, which is restricted to the purchase of a home. However, there are some business loans and secured loans which restrict what you can do with the money. For example, even if you live in a state where marijuana is legal, you cannot secure start-up funding for a business connected to the production and sale of marijuana or its derived products in most cases.

  • Speed and Ease of Access

Unsecured personal loans are far quicker and simpler than secured or co-signed loans, precisely because these alternatives require additional guarantees. When you apply for an unsecured personal loan, you will not need to have an asset valued or a co-signer evaluated. Your own credit score and affordability rating will determine what you can borrow and the APR you will be offered.

  • Credit Score Improvement

Successfully undertaking and clearing an unsecured personal loan will help to improve your credit score, so long as you make your payments on time and clear the balance within the agreed-upon time. This is true of most forms of credit, however.

For some people, unsecured loans might offer freedom and flexibility. All you have to do is shop around for the best possible deal. You can observe the Top 6 Unsecured Loans at The Dallas Morning News to get an idea of what kind of interest rates and loan amounts you could be eligible for.

This article is for information purposes only and should not be considered trading or investment advice. Nothing herein shall be construed to be financial legal or tax advice. Trading Forex, cryptocurrencies, and CFDs poses a considerable risk of loss

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