There are a variety of different types of loans available to borrowers today. Unfortunately, since the circ*mstances and individual consumer need varies so greatly – there is not a one size fits all solution when it comes to unsecured loans. Unsecured loans are those that rely on the creditworthiness of a borrower versus requiring collateral to secure the debt. Due to the more-risky nature of this loan structure, higher credit scores from the national credit bureaus are typically required for unsecured loan approval. Unsecured loans come in many forms and may include some that you may already be familiar with and use. Here are some popular common unsecured loan types used by consumers today. While unsecured loans are ideal for some situations, other financial scenarios may benefit from another loan type. Below are some pros and cons of unsecured loans so you can see how they may be a benefit to you. Check out our “How Long Will It Take To Pay Off My Credit Card?” Calculator to see how long it will take to pay off your existing credit card debt and the interest you can expect to pay over the course of the remaining months. Unsecured loans are a convenient way to get quick access to cash. They are easily accessible and offer an affordable solution for consolidating debt and paying off credit card bills, unexpected emergencies, and even home improvements and repairs. Unsecured loans are not for everyone, though, so it is important to assess your current financial situation to ensure this is the right solution for your needs. When considering a Personal Loan, make sure you consider the following: If so, an unsecured Personal Loan may be the solution to help you reach your financial goals. If you can’t decide which solution is right for your current situation, speak to Allegiance Credit Union for more information. When it comes to unsecured loans, there are a variety of different lenders available for borrowers such as banks, credit unions, and loan companies. These loan professionals can assist you every step of the way. Be sure to ask potential lenders about their interest rates and annual percentage rates before committing and completing an application. Applying at too many locations may negatively affect your credit score which is the last thing you want to do. The best place to start is your local credit union. These popular financial institutions often offer the best interest rates and ask fewer requirements of their members to qualify. Contact Allegiance Credit Union today to learn more about our unsecured Personal Loans and Credit Card offerings. Our loan professionals can help determine the perfect loan solution for your current situation and help you reach your financial goals. Unsecured Loans can impact your financial future. Review our "Personal Loans Revealed: Bust The Myths and Get The Money You Need" Guide to get you even closer to the financial future you have imagined.What are Unsecured Loans?
Examples of Unsecured Loans:
What are the Pros of Unsecured Loans?
What are the Cons of Unsecured Loans?
How to know if Unsecured Loans Are Right for You
Where to get Unsecured Loans/How to Apply
FAQs
What are the advantages and disadvantages of unsecured loans? ›
| Type of Loan | Advantages | Disadvantages |
|---|---|---|
| Unsecured Loans | Shorter repayment terms | Lower loan amounts available |
| Faster application process | Higher interest rates | |
| Loan top ups available | Risk of negative impact on credit score |
Because an unsecured personal loan has no collateral backing it, you may encounter higher interest rates, fees and other things they could limit how far is the loan could go. In addition, the lack of collateral could make it hard for those with lower credit scores to get approval.
What are the benefits of an unsecured loan? ›Unsecured loans may offer more flexibility than secured loans. The application process may be simpler as you don't need to provide details of the asset you are using to secure the loan. There may also be more flexibility when it comes to making additional repayments.
Are unsecured loans good or bad? ›As a rule, secured loans will allow you to borrow more money at lower rates, but they put your property at risk if you fail to pay. Unsecured loans don't put your property at risk, but they can be more difficult to get and you'll generally pay more interest.
Why is an unsecured loan risky? ›Because unsecured loans are not backed by collateral, they are riskier for lenders. As a result, these loans typically come with higher interest rates. If a borrower defaults on a secured loan, the lender can repossess the collateral to recoup the losses.
Why is unsecured debt bad? ›Because lenders take on more risk, unsecured debts tend to have higher interest rates and stricter eligibility requirements than secured debt.
Do unsecured loans hurt credit? ›Missing payments and defaulting on an unsecured loan won't cost you any collateral, but it tends to have a major impact on your credit. Because your payment history is the biggest factor in your credit score, missing even one loan payment can significantly affect your credit score.
Can an unsecured loan take your house? ›If you fail to pay unsecured debt, the creditor can't take any of your property without first suing you and getting a court judgment, subject to a few exceptions. A "secured debt," on the other hand, has a piece of property serving as collateral for the debt.
What happens to unpaid unsecured loans? ›Defaulting on an Unsecured Loan
As mentioned previously, however, a collection agency may try to sue you for the unpaid amounts you owe, attempt to garnish your wages, or place a lien on your home through a court order. 5 And, as with a secured loan, you can expect a serious impact on your credit score.
Investors holding both secured and unsecured debt in their portfolio benefit from risk diversification, especially realizing that unsecured debt is riskier. Secured debt, backed by collateral, offers a lower risk of default; however, because the rates are often lower, your potential return will be lower.
How much unsecured debt is too much? ›
Debt-to-income ratio is your monthly debt obligations compared to your gross monthly income (before taxes), expressed as a percentage. A good debt-to-income ratio is less than or equal to 36%. Any debt-to-income ratio above 43% is considered to be too much debt.
What credit score is needed for unsecured loan? ›To qualify for a personal loan, borrowers generally need a minimum credit score of 610 to 640. However, your chances of getting a loan with a low interest rate are much higher if you have a “good” or “excellent” credit score of 670 and above.
What are the disadvantages of a secured personal loan? ›Because your assets can be seized if you don't pay off your secured loan, they are arguably riskier than unsecured loans. You're still paying interest on the loan based on your creditworthiness, and in some cases fees, when you take out a secured loan.
What are 3 disadvantages of a loan? ›Loans are not very flexible - you could be paying interest on funds you're not using. You could have trouble making monthly repayments if your customers don't pay you promptly, causing cashflow problems. In some cases, loans are secured against the assets of the business or your personal possessions, eg your home.