Unsecured Loans With Poor Credit – Pros and Cons
An unsecured loan is basically a loan that does not require any kind of collateral to back up the amount you are borrowing. Instead of depending on the valuable properties of a borrower as collateral, lenders usually approve unsecured loan applications based on the creditworthiness of a borrower. For this reason, examples of unsecured personal loans are credit cards, student loans, and personal loans.
There are two types of loans available to consumers:
secured loan and an unsecured loan. A secured loan involves a lien against the property of the borrower. If a borrower defaults on his/her loan agreement, the lender can take possession of the borrower’s property and sell it to regain his money. This is obviously a very serious concern for the lender and so, to minimize the risk involved, most lenders require borrowers to offer collateral or securities for securing the loan. In other words, the lender expects some sort of assurance from the borrower.
is something of great value that the lender feels safe about. Therefore, it is a good option if you have a bad credit score or no collateral at all. This will help you get a lower interest rate. This will also help you get rid of debt sooner, as unsecured loan rates are always higher than secured loans. However, if you want a high-interest rate and you don’t have any collateral, then this may not be a good option.
a secured loan comes with some disadvantages. First of all, as mentioned above, you are required to offer some kind of security or assurance to the lender before you avail of an unsecured loan. If you do not offer any collateral, then the lender will have every right to repossess your vehicle or any property that you might have. On the other hand, if you offer a valuable asset such as a car or some other expensive property, the lender might feel reluctant to take it away.
Another disadvantage associated
with unsecured loan options is that borrowers often fail to repay them in time. This usually happens because borrowers prefer to take a larger repayment holiday rather than make regular monthly payments. The biggest reason why this happens is that people feel more comfortable taking larger lump sum payments rather than making monthly payments. As a result, they end up repaying only half of the total amount owed instead of the whole amount. In addition, many lenders charge late payment charges, which add to your financial problems and make it even more difficult to repay the loan in time.
If you feel that you are suffering from bad credit,
or lack of creditworthiness, then you should first get in touch with a reliable and experienced debt consolidation company. A company that helps you to consolidate all your debts into a single payment, while also providing budget management tips along with personal assistance can be very helpful. In case, if you are a homeowner, then you can approach a lender or a real estate agent and look for a suitable lender who can provide unsecured loans with a low interest rate. Even if you do not own a home, but you need financial assistance, then there are various other options available for you such as the unsecured loan for the tenant. With the help of this loan type, a tenant can fulfill all his or her basic needs and at the same time improve his or her creditworthiness with the help of good payment history.