Wednesday, June 11, 2014

Unsecured Loans a Better Solution to Payday Loans

When we reach a very tight financial situation, the options available to us can seem to have reduced to almost nothing. The only answer may seem to be the pawnshop or high interest payday loans. But this is not the fact, with unsecured loans available to even those in desperate financial strife.

If income is not enough, and outgoings are growing, then we usually find ourselves unable to pay loans, developing bad credit scores and looking into what appears to be a very bleak future. In such circumstances it does seem impossible that any lender would approve loans that are unsecured.

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The result is that many people in those financial tight spots end up pawning their valuables to raise cash, or taking out payday loans, neither of which are realistic solutions to the overall problem. They may be a source of funds, but they also add to the financial pressures. The better option is to get a small personal loan requiring no security at competitive interest rates.

Where the Problem Lies

The problem with accessing unsecured loans in such circumstances lies in the fact that mainstream lenders, like banks, have little tangible evidence that their loan will be repaid at all. The last thing they want is to see it defaulted on, and applicants with a poor credit rating are considered more likely to fail to pay.

With this is mind, security is generally required, leaving loans that are unsecured an option closed to applicants. But, if applicants had property or possessions to use as security, then their financial problems would probably never have developed in the first place.

Thankfully, loans requiring no security are a realistic option from alternative lenders mainly because they need to offer something more than their much larger competitors. All a person has to do is a little searching.

Problem with the Alternatives

It might seem that pawnshops and payday loans are practical solutions to the problem of accessing cash quickly. However, unlike unsecured loans, they have considerable risks that can simply worsen the situation.

A pawnshop will provide cash for items, effectively making it a secured loan. The rate of interest can be high, while the cash released on the item is never its true value. A ring worth USD1,000, for example, may only get USD600 in cash, after which interest is paid continually until the principal is raised to get the ring back.

Payday loans, meanwhile, are unsecured loans, though have the condition it will be repaid on the next pay day. It seems perfect, but the issue is that part of a paycheck would have to be spent on repaying the loan and interest in full, thereby diverting funds away from other bills.

In comparison, when mainstream lenders provide loans that are unsecured, there is a clearer repayment structure allowing for the situation to improve gradually.

Where to Find a Loan

While banks and mainstream lenders may be hesitant to grant unsecured loans, there are many smaller financial firms that are happy to grant loans requiring no security. These can be found on the internet, where interest rates can be lower, or in the small financial ads in newspapers.

However, always be sure to check the legitimacy of every financial company before committing to any secured or unsecured loan agreement. Then you can enjoy fully the benefits of the much needed injection of funds.

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