Advantages and Disadvantages of Unsecured Loans

An unsecured loan can provide a simple and cheap financial solution, whether you want to buy a new car or pay for that new kitchen youíve been thinking of. Unsecured loans off all or this without the risk of losing your home, like several other methods of borrowing. This article will detail all the advantages and disadvantages of an Unsecured Loan, helping you to make a wise and informed decision.


How much can I borrow?

Unsecured loans are designed to be flexible method of borrowing amounts between £1,000 and £25,000 over a loan term of one to five years. This will allow you to plan exactly what you end up borrowing and therefore what you have to repay, this may allow you to be better prepared and in greater control of your monthly repayments. This will prevent you falling behind on payments and running into unwanted financial difficulties. Advantages and disadvantages of Unsecured Loans can vary dependent on the loan provider. It is for this reason that it is best to shop around when choosing which loan provider to go with, and remember although attractive interest rates alone should not be used to make your selection. It is crucial that you have a comprehensive understanding the terms and conditions attached to the loan; if you donít you could end up running into unforeseen financial difficulties.

By opting for an Unsecured Loan, you are requesting to borrow funds without offering anything to guarantee that the loan will be repaid. A large number of finance providers off Unsecured Loans, from banks, building societies and online lenders, however it is important that due to the absence of a guaranteed repayment, Unsecured Loans can prove to be expensive, especially if you have poor credit history.

What are the advantages of unsecured loans?

Unsecured Loans frequently prove far easier to obtain than some other methods of borrowing. In comparison to the time taken to be approved for a secured loan, Unsecured Loans often have considerably shorter approval times, this is largely down to the fact that there are less checks that need to be completed as checks on assets do not need to be completed. So if you are hoping for the quickest loan process possible, choosing an Unsecured Loan is a good choice.

The main advantage to an Unsecured Loan is the relatively small risk they pose to the borrower. The temptation of secured loans is that they usually offer lower interest rates due to the low risk they pose to the lender, however what people tend to overlook is that they pose a considerably risk to the borrower; which can in extreme cases lead to the borrower losing their home. However as Unsecured Loans do not require this backing of the loan with the leverage of a property, this cannot happen, meaning you can borrow without the fear of losing your home, knowing this fact can provide valuable peace of mind, which may make paying the slightly higher interest rates associated with Unsecured Loans worthwhile.

Another advantage to Unsecured Loans is that in worst-case scenarios the outstanding balance can be wiped away if you have to file for bankruptcy. However it is crucial that you understand this should not be your intention when taking out the loan, as this would be fraud and payment protection agreements become void in these circumstances, meaning you would still be liable for the money owed. However, if you end up down the line making a decision to declare personal bankruptcy, Unsecured Loans can be wiped away in personal bankruptcies.

What are the disadvantages of Unsecured Loans?

Due to the higher risk they pose to the loan provider, Unsecured Loans often come with higher rates of interest. However borrowers with good credit histories, strong earning ability and only a handful of existing financial responsibilities will still be rewarded by lenders with their best rates. However donít be put off if you do have a less than desirable credit history, there are companies who specialize in bad credit loans and may still be able to approve you for the funds you require.

The biggest disadvantage to an Unsecure Loan is the considerably lower loan amounts they offer. Subject to the amount of cash you require, you may not get what you would like with an Unsecured Loan. The largest loans are usually given to lenders relying on equity in property to back up that loan, otherwise known as a secured loan. While the amounts will vary from lender to lender, it will be difficult to get more than $25,000 for an Unsecured Loan. If you require funds greater than this a secured loan or remortgaging your home may prove to be more prudent avenues to pursue.

For the same reason as offering lower loan amounts, Unsecured Loans also offer lower loan terms. This goes hand in hand with the general restriction on the amounts given for Unsecured Loans. Term limits of three years or less will be common; some lenders may offer as much as five years. Lower terms, of course, means higher monthly payments.

Hopefully knowing all of the information above will enable you to make a more informed decision, which should ensure you end up with the loan that best fits your individual circumstances. However, be aware that no borrowing no matter what itís size should be undertaken lightly, applying for finance you cannot afford can severely damage your credit history and borrowing potential. The easiest way to find the best loan for your circumstances is to use an online comparison site. Using information supplied by you the comparison site will filter options for Unsecured Loanslisting in order of relevance the search results that best suit your criteria.


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