Unsecured Loans with Bad Credit - Advantages of Borrowing Unsecured

Published: 21st February 2012
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When you are looking to borrow money you can either get a secured loan that requires some form of collateral such as a house, car or boat or you can get unsecured loans which do not require any type of collateral. Each has advantages and disadvantages and you need to evaluate each to decide which type of loan is best for you.

This following will explore the pros and cons of unsecured loans and will help you see if an unsecured borrowing is right for you.

Benefits of Borrowing Unsecured

The very first advantage you should consider when considering an unsecured loan is the fact that there is no collateral required to obtain the loaned money. The benefits here are twofold, you may not have anything of value to use as collateral and even if you do, you may not wish to risk losing your personal property if you should happen to default on the loan.

An unsecured loan lets you have some peace of mind knowing that your home, car or other valuables are not at risk if the loan repayment becomes more than you can bear. No strings attached.

The second advantage of an unsecured loan is that you are allowed to use the proceeds of the loan in whatever way you wish. Frequently a secured loan will come with restrictions on how you can use the cash you receive, but this is not the case with unsecured loans.

You can use this money for anything and everything which gives you freedom and flexibility.

A third advantage of an unsecured loan is its ability to help repair and improve your credit history and credit score.

So long as you continue to make payments on time your credit rating will increase. Having a good credit score should never be underestimated as it can potentially save you thousands of dollars on any debt obligations you might have. Those with good credit scores find it easier to obtain every type of loan and to do so with better repayment terms and interest rates than those with poor credit scores.

A change of several percentage points when taking a large loan such as a car loan or mortgage will make a big difference in your monthly payments and the overall costs you pay over the life of the loan.

One final advantage is that you can typically get approval for an unsecured loan much faster than you can for a secured loan. In some cases you can get instant approval meaning you don't have to wait for access to your new line of credit. This can be a huge benefit to you if you need the money for an emergency or have other urgent needs for the loan money.

Disadvantages of Unsecured Loans

The biggest disadvantage you will face with an unsecured loan is the higher interest rates they carry. This not only increases the cost of the loan over time, but will also increase your monthly repayment obligation. You can offset this somewhat though if you plan on repaying the loan more quickly than the terms call for.

For example, a loan for $10,000 at 12% interest over 10 years (120 months) will cost you $143.47 a month and you would pay $7,216.51 in interest over the course of the loan.

If you double your monthly payments ($286.94/mo) you would shorten the loan obligation to just 44 months and lower the total interest payments to $2,356.41, saving you a total of $4860.10 in interest payments.

Used in this way an unsecured loan can be a very good way for you to get access to the money you need and increase your credit score.

A second disadvantage of unsecured loans is that you usually can not borrow as much money as you could using a secured loan. Depending on your borrowing needs this may or may not impact you.

As you can see an unsecured loan presents both advantages and disadvantages, but for most people the advantages far outweigh the disadvantages. Using an unsecured loan is often the best way to improve a poor credit rating.

Even though unsecured loans carry higher interest charges than secured loans you can offset this by ensuring you don't borrow too much and by paying off the loan more quickly.

This methods will allow you to borrow the money you need at a lower rate because of the quick repayment and will also improve your credit score so that any future loans will be easier and cheaper for you to obtain.

While no one solution is perfect for everyone, if you have a need to take a loan and don't want to be burdened with restrictions on how the money is used an unsecured loan is ideal for you. You can get unsecured loans for any purpose and can receive rapid and in some cases instant approval on your loan application, although typically you should expect to wait 2 business days for approval.

This can make unsecured loans a powerful way to get increased capital for your home business, to take on small home improvements, to consolidate other higher interest debt and to get money for any project or need that you have.

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