Unsecured loans, otherwise known as personal loans, allow the debtor to obtain debts based on one's credit history and personal background. This type of loan does not require the debtor to give collateral or mortgage a property as a security for the payment of such debts in case of insolvency. Having said these, personal loans are the safest type of loans for the debtor. However, this feature does not mean no property can be forfeited in favor of the creditor in case the debtor cannot pay his or her monetary obligations because in some states, the court may be asked to grant remedy for the creditor to comply and pay the said debts by way of attaching properties of the debtor. Although this process is lengthy and time consuming, it ensures that the debtor does not run away freely from one's financial obligations. Hence, despite this advantage on the part of the debtor in applying for a personal loan, it must be noted that a debt must still be paid not only because it is a legal obligation but it is also a moral obligation on the part of the debtor.
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In applying for an unsecured loan, the creditor also has to undertake comprehensive and strict safety nets to ensure that his or her interests are protected. All creditors of personal loans perform background check on the applicant-debtor. This background check involves the applicant's credit history, personal financial capacity, and other matters relevant in determining whether or not the person applying for an unsecured loan can repay the same and up to how much he or she can afford to loan and pay. This type of loan also entail strict observance of the terms and conditions of the loan. Since the creditor has no security, any default, missed, or late payments are dealt with accordingly. Moreover, this kind of loan provide higher risks on the part of the creditor. Hence, this type of loan has higher interest rate to easily cope with and repay all the risks the creditor has to undergo. With all of these risks, advantages, and disadvantages of the features of an unsecured loan, it can be said that actually, both the creditor and debtor enjoy benefits from the same. The debtor gets to obtain a loan without necessarily giving a portion of his or her ownership of a property to the creditor. The creditors, on the other hand, reap the fruits of higher interest rates from the money they lent.
Unsecured loans are the safest way to obtain a loan on the part of the debtor but they also provide for higher risks on the part of the creditor. As a result, creditors impose reasonable higher and stricter requirements for the applicants of personal loans. Upon approval, the debtor certainly enjoys the great benefits of obtaining a loan without having mortgaged any of his or her property. The important thing in personal loans is that the person must maintain or improve one's credit score and credibility. This is the major factor in determining whether or not one can avail of an unsecured loans other than the applicant's present financial condition.
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