What is an Unsecured Loan?
To understand what an unsecured loan is you must also understand what a secured loan is. These two types of loans are some of the most common in today’s society.
Secured Loans and Collateral:
A secured loan means that you have valuable collateral that you can put towards the loan. If you stop making payments on your loan, then the bank or lender can seize whatever assets you placed as an alternative payment option. In this way, the idea of a secured loan is very similar to that of a pawnshop. They will provide you with the cash you need, and if you don’t pay them back, they can keep whatever valuables you offered in the pawn agreement.
Now, with a secured loan you don’t need to worry about having to trade your items like you do when you pawn. If you put your home up as collateral against the loan you can still live in your home and use it as you please. If you ever stop making your payments, the lender can then involve the law and evict you, all while remaining within their legal rights.
Unsecured Loans and The Benefits They Offer:
Let us focus now on unsecured loans. Now that you know what a secured loan is, can you guess what unsecured means? It merely indicates that the loan you have signed up for does not require any form of insurance. These kinds of loans are usually a smaller amount and can be paid back very quickly. That is why these kinds of loans do not need you to sign over any assets. If you stop making payments, they will usually fine you or charge you for additional time and money spent while trying to receive your payments.
Unsecured loans are ideal for things like needing to purchase a new car after an accident, or for helping pay rent one month when you are in a jam. Some of these loans you can sign up for online like through Click Finance. In some cases, you can receive your loan as soon as the very next day. Since there is no collateral placed against the loan, you won’t be at risk if you cannot make your loan payment for a month or two. These types of loans are convenient in this way but can prove to be a pain in others.
If you are in need of a larger loan, you often won’t be able to find one that is unsecured. Most banks and lenders will not feel comfortable with providing larger loans without some sort of security for them. You can also end up getting stuck with a high-interest rate. If it is going to take you a while to pay it off, you could end up paying almost double what you originally borrowed. When it comes to the payment plans, you won’t be able to adjust them in any way. So if you end up losing your job or need to start a fixed income, you won’t be able to change the payment amount.
Whatever you might end up needing a loan for, now you know the difference between the two and can make an educated decision on how to proceed.