Monday, May 5, 2014

Personal Unsecured Loans - The Yeas and Nays

If you do not have any collateral to secure a personal loan, or if you just do not want to put valuable property on the line, then you need to land an unsecured loan. Most everyone gets hit with a cash flow problem from time to time. The car breaks down, you need a new prescription, you have to travel to check on a relative, all kinds of things can happen to put some stress on the old pocket book.

A personal unsecured loan is built for these sort of emergencies. Since there is no security for the loan, the risk is higher for the lender and thus interest rates tend to be higher. Loans such as this usually range in the $500 to $1500 amounts. If you are in the market for such a cash infusion, you will want to evaluate this sort of loan and see if it fits your requirements. These loans do have their upsides and their downsides.

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Personal unsecured loans have their advantages.

One of the outstanding advantages of an unsecured personal loans is that you do not have to worry about coming up with or risking any valuable assets. They do not require collateral. You do not have to worry about your home, your car, your jewelry, or whatever from being seized should you somehow default on the loan. The lender could sell them to cover the cost of the loan.

Another advantage of getting one of these loans is the convenience of the application. Minimum documentation is required. If you apply for such a loan online, you can funds in your bank account within 24 hours or less. And the competition in the market is fierce, so you will be able to shop around for the best interest rates and repayment terms. Also, many of the lenders do not even run a credit check. All of this is great if you are in need of funds fast.

The interest rates on personal unsecured loans are fixed so you will not have to worry about payments getting larger during the life of the loan.

Personal unsecured loans have their disadvantages, too.

The biggest disadvantage to unsecured loans is the high interest rates. Indeed, competition in the market is fierce, but prepared to pay interest rates much higher than for secured loans. Since the loan is offered on your signature alone, the risk is high for the lender and the interest rates are pumped up to cover that risk. Of course, the better your credit ratings, the lower the interest.

Unsecured personal loans, also because of the risk, tend to be offered in amounts far less than you could get for a secured loan. Your income, your credit history, and other requirements set by the lender will restrict the amount you can borrow. As mentioned above, these loans are usually set at a maximum of $1500. If you are looking for an amount larger than this, you will need another sort of financing.

Repayment terms can be rather stringent as well. Sometimes they require repayment within as little as two to four weeks. Again, this is usually set by the lender, but it could be negotiable. Of course, the longer you take to pay the loan, the more interest you will pay. Should you decide to pay the loan off early, you will be eating into the interest the lender is due and you may be required to pay an early pay off penalty.

Make your decision carefully.

You will need to weigh the pros and the cons before deciding to take out a personal unsecured loan. Borrow responsibly, pay the loan back according to the terms and conditions of your contract. If you do, you will be improving your credit rating and making it easier to get such a loan should you need one in the future.

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