Is an unsecured personal loan right for you?
Personal loans come in two flavors: secured or unsecured. The difference between them is simple enough—you’ll put up collateral to secure a secured personal loan but not for an unsecured personal loan. The only question is which works best for you.
An unsecured personal loan presents a higher risk for the lender, so requires a higher credit score and income. That risk level also means that an unsecured personal loan comes with a higher interest rate than a secured loan.
So what are the benefits of an unsecured personal loan? Their broad accessibility, for starters. Millions of people—especially city dwellers—don’t own houses or cars, which are commonly used as collateral. And, if they don’t have financial assets like certificates of deposit or annuities to offer as security, an unsecured personal loan might be the only option.
And, now that home values have tanked, millions of homeowners no longer have enough equity in their houses to use them as collateral for an unsecured personal loan. And, frankly, in the new economy a credit score of 725 isn’t as shiny and promising as it used to be the eyes of many lenders.
There are other benefits to an unsecured personal loan, even for those who can offer acceptable collateral. The asset securing the loan will have to be forfeited if financial calamity strikes the borrower. A period of unemployment, a family member’s medical bills or any number of hardships could mean losing a family home or necessary transportation.
For help finding the best personal loans, contact American Unsecured, one of the nation’s largest loan-consulting firms.
No Collateral Loan
Collateral: Assets pledged by a borrower to secure a loan or other credit, and subject to seizure in the event of default, also called security.
That means if you put up collateral for a loan, your assets can be seized; that is, you can lose your house or car. Another way to think of it: if the lender knows he stands to gain your house or car, he’s got to feel much more secure in lending the money you need.
Now look at unsecured, another way of saying no collateral loan: Read more