About Unsecured Loans
What are unsecured loans?
An unsecured loan is the type of loan that is issued to the borrower’s on the creditworthiness, not by the security and collateral. This means that the buyer does not need to provide the lender with any type of collateral or security to the lender.
Unsecured loans often refer to personal loans or signature loans as they are also availed without any collateral or security. The borrower must generally have high credit ratings to be approved for certain unsecured loans.
Examples of unsecured loans
- The unsecured loans include credit cards, student loans and also personal loans which might be revolving or term loans.
- A revolving loan is the type of loan that has a credit limit that can be spent, repaid and spent again. For example credit cards and personal lines of credit.
- Term loans are the loans that the borrower repays in equal instalments until the loan is repaid at the end of its terms, these types of loans are affiliated with secured loans such as car loans.
- Signature loans are the basic type of unsecured loan as the name suggests, the loan is secured by only the signature of the buyer or the promise that he will repay the funds. These loans can be availed through banks or credit unions and the money can be used as per the desire of the borrower.
- Credit cards as the loan is an option for many people to borrow, when you use a credit card you don’t get a lump sum at the beginning of the loan as you get with the signature loan you will use the card instead
- Student loans: these are also the type of unsecured loans that offer the funds for the education of the students. These are a good choice because this loan has features that you won’t find elsewhere like flexible repayments, grace periods, interest subsidies and more.
Defaulting on unsecured loans
If a borrower defaults on a secured loan the lender can repossess the collateral in order to recoup the losses, and if the borrower defaults on an unsecured loan, the lender will not be able to claim the property. But the lender can take other actions like commissioning a collection agency in order to collect the debt or the lender can take the borrower to court. If the court gives the decision in the lender’s favour the borrower’s wages can be deducted directly. The lender will have the right to keep possession of the property until the person does not repay the loan.
A secured or unsecured loan that is right for you
There are several factors that come into play while comparing both. A secured loan is basically easier to get, as there is less risk with the lender to lend the funds to the borrower.
In the case of a secured loan, the interest rates are lower if you qualify to avail of a secured loan it will be a smarter money management decision as compared to an unsecured loan and the secured loan will offer higher borrowing limits, enabling you to have more money.
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Special Note: An individual must examine the whole EMI amount payable to the lender with the Personal loan EMI calculator.