Unsecured loans are loans that one can borrow without the support of any asset. It is basically given depending upon your creditworthiness.
Unsecured loans are also known as signature loans as you don’t have to provide an asset like a house or a car for the loan. Though people can borrow an unsecured loan if they have a good credit score, there are lenders who provide loans to people with bad credit as well.
An unsecured loan can be borrowed if your requirement for money is short. Like secured loans, you cannot borrow a large amount of cash when it comes to unsecured loans. So the question is “How much can I borrow?”
The plain and simple answer to that question is £50 to £5,000. Though it may differ for different lenders.
Pros of Unsecured Loans
The application process is simpler
When it comes to applying for unsecured loans, the process is simple and fast. Most of the lenders accept applications online. You can just visit their website and fill in the form. Do not provide any wrong information as it may decrease your chances of getting a credit.
Lenders transfer the money to you within a day or less after the unsecured loan is approved.
No risk of losing your property
In unsecured loans, you do not provide an asset as a collateral like in secured loans. In secured loans, if you default on your loan the lender can take your house or the car away from you.
But in an unsecured loan, you are not at any risk of losing your asset as you are not getting a loan against it. If you default on the loan, you can be charged additional fees but there’s no risk to property.
Can be used for minor financial issues
Unsecured loans can be used for small financial need like vehicle repairs or servicing, medical or phone bills, house modifications, etc. As the money requirement is low for these situations, going for secured loans is not a good option as the money you borrow is more than you actually need.
So unsecured loans can help in this situation where the money required is small and the loan duration too.
Cons of Unsecured Loans
Higher interest rates
As the loan you are getting is not backed against any type of asset, the risk for lenders is huge. They may lose their money in return for nothing as they don’t have anything as a security. So because of this sole reason, the interest rates on unsecured loans are high than any other form of loans.
The loan amount can be smaller
When it comes to unsecured loans, the loan amount is not huge. Though it is used for minor financial fixes, sometimes it may not what the borrower was looking for. As the lender is at risk here, they provide what they think you can afford to repay them back. So sometimes it may not be enough for your particular financial need.
What do you mean by Interest Free Credit?