The Pros and Cons of Unsecured Loans
There are a variety of different types of loans available to borrowers today. Unfortunately, since the circumstances and individual consumer need varies so greatly – there is not a one size fits all solution when it comes to unsecured loans.
What are 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.
Examples of Unsecured Loans:
- Student Loans
- Credit Cards
- Personal Loans
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.
What are the Pros of Unsecured Loans?
- You do not have to be a property owner with collateral to obtain an unsecured loan.
- The loan and application process for unsecured loans takes much less time than those of a secured loan and is typically approved in just a few business days.
- The interest rate on unsecured Personal Loans is much lower than those on credit cards, saving you tons of money on interest charges each month.
- The monthly payments for an unsecured Personal Loan are set at a fixed rate, meaning that the payment is the same amount every month until the loan is paid in full.
What are the Cons of Unsecured Loans?
- Due to more risk to the lender, borrowers often find interest rates on unsecured loans to be higher than those on secured loans. The higher interest rates can cause higher monthly payments.
- An average credit report and steady income are required for unsecured loans.
- Loan amounts may be much smaller than those available with secured loans.
- Instead of paying small monthly minimum credit card payments, an unsecured Personal Loan defines exact payments due each month, meaning your monthly payment may increase compared to what you are currently paying on credit cards. The positive to this scenario is you will have an end date when your cards will be paid off and you most likely will save money in the long run!
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.
How to know if Unsecured Loans Are Right for You
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:
- Can you afford the increased monthly payment?
- Are you fine with making loan payments for the duration of the term?
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.
Where to get Unsecured Loans/How to Apply
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.