Advantages and Disadvantages of an Unsecured Personal Loan

Published: 01st October 2008
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Unsecured personal loans have a few advantages and disadvantages for borrowers. Unsecured personal loans do not require collateral so you are not at risk of loosing personal property if you default on the loan. Unsecured personal loans also give you full freedom over the usage of the funds because lenders do not impose any restrictions on them like other types of loans. Unsecured personal loans can help you to establish a good payment history and positive credit history. They also have faster approval times over loans that require collateral.



The disadvantages of unsecured personal loans are that they usually carry higher interest rates than secured loans and you cannot borrow as much without collateral as you can with it. Depending on your situations an unsecured personal loan may be the solution for you if you require funds.



The biggest advantage of an unsecured personal loan is that you do not have to put up your house, car, or other valuable property to get the loan. If you default on the loan your assets will be protected. If you do not own a home or have any assets, you can get the money you need with an unsecured personal loan.



Sometimes when you get a loan your approval is contingent on your use for the funds or your use is limited by the loan terms. This is usually not the case with an unsecured loan giving you the freedom to use the funds for any purpose.



If you do not have a good credit history or have not had time to establish one, paying responsibly on an unsecured loan will help you to strengthen or build your credit history. Having good credit is important if you want the best interest rate when you borrow money and showing responsibility with an unsecured personal loan can help your credit.



Unsecured personal loans are usually approved faster than secured loans because they do not require valuation of equity and the paperwork that goes with it. If you need cash fast this makes an unsecured personal loan a good choice.



The major disadvantage of unsecured personal loans is that they carry higher interest rates than secured loans. The interest rate you will qualify for will vary depending on your credit, but it will always be higher with an unsecured loan than with a secured loan.



If you need a large loan an unsecured loan may not be enough. Lenders typically do not lend amounts in unsecured loans as large as they do for secured loans. If you need a loan consider the advantages as well as the disadvantages of unsecured personal loans and check out the interest rates of your local lenders.


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