There are a variety of different types of loans available to borrowers today. Unfortunately, since the circumstances and individual consumer need varies so greatly – there is not a one size fits all solution when it comes to unsecured loans.
What are Unsecured Loans?
Unsecured loans are those that rely on the creditworthiness of a borrower versus requiring collateral to secure the debt. Due to the more-risky nature of this loan structure, higher credit scores from the national credit bureaus are typically required for unsecured loan approval.
Unsecured loans come in many forms and may include some that you may already be familiar with and use. Here are some popular common unsecured loan types used by consumers today.
Examples of Unsecured Loans:
While unsecured loans are ideal for some situations, other financial scenarios may benefit from another loan type. Below are some pros and cons of unsecured loans so you can see how they may be a benefit to you.
What are the Pros of Unsecured Loans?
- You do not have to be a property owner with collateral to obtain an unsecured loan.
The loan and application process for unsecured loans takes much less time than those of a secured loan and is typically approved in just a few business days.
- The interest rate on unsecured personal loans is much lower than those on credit cards, saving you money on interest charges each month.
- The monthly payments for an unsecured personal loan are set at a fixed rate, meaning that the payment is the same amount every month until the loan is paid in full.
What are the Cons of Unsecured Loans?
- Due to more risk to the lender, borrowers often find interest rates on unsecured loans to be higher than those on secured loans. The higher interest rates can cause higher monthly payments.
- A good credit report and steady income are required for unsecured loans.
- Loan amounts may be much smaller than those available with secured loans.
- Unlike paying small monthly minimum credit card payments, an unsecured personal loan defines exact payments due each month, meaning your monthly payment may be more when compared to what you are currently paying on credit cards. The positive to this scenario is you will have an end date when your unsecured loan will be paid off and you most likely will save money in the long run! To see your potential savings, check out our Debt Consolidation Calculator!
How to know if Unsecured Loans Are Right for You
Unsecured loans are a convenient way to get quick access to cash. They are easily accessible and offer an affordable solution for consolidating debt, paying off credit card balances, unexpected emergencies, and even home improvements and repairs.
Unsecured loans are not for everyone, though, so it is important to assess your current financial situation to ensure this is the right solution for your needs. When considering a personal loan, make sure you consider the following:
- Can you afford a potential increase in the monthly payment?
- Are you fine with making loan payments for the next five to seven years, assuming it’s a large loan?
If so, an unsecured personal loan may be the solution to help you reach your financial goals. If you can’t decide which solution is right for your current situation, speak to your local credit union for more information.
Where to get Unsecured Loans/How to Apply
When it comes to unsecured loans, there are a variety of different lenders available for borrowers such as banks, credit unions, and loan companies. These loan professionals can assist you every step of the way. Be sure to ask potential lenders about their interest rates, fees, and terms before committing and completing an application. Applying at too many locations may negatively affect your credit score which is the last thing you want to do.
The best place to start should be your local credit union. These popular financial institutions often offer the best interest rates and ask fewer requirements of their members to qualify.
Contact your local credit union today to learn more about their unsecured loan products. Their loan professionals can help determine the perfect loan solution for your current situation and help you reach your financial goals.
At Carolina Trust Federal Credit Union, we know that sometimes, you need a little extra money for anticipated and unexpected life occurrences, and we get it. Whatever it may be, don’t worry— we’ve got a loan for that.
If you are ready to learn more about unsecured loans, review our "Personal Loans Revealed: Bust The Myths and Get The Money You Need" E-book.