Unsecured loan does not require any collateral or security. It is usually available for relatively smaller sums of money. The repayment term is usually shorter than what is available for a secured loan. A typical unsecured loan could be worth a hundred to a few thousand that should be repaid in a few months up to two years or so. The maximum repayment period is three years, albeit it is rare and only applicable when borrowers ar e eligible for a few thousand quid. There are some notable advantages and disadvantages of unsecured loan.
Advantages of Unsecured Loan
- It is available to all who have an income. The nature of employment is not always a cause for concern. The income definitely determines eligibility but credit score, assets and overall financial status do not matter. Anyone who can prove their ability to repay is eligible. There are different kinds of short term loans available without security or collateral so borrowers can choose the most relevant option.
- An unsecured loan is available for those who do not have bank accounts. One type of short term loan, which is similar to a payday loan, is available wherein a borrower gets paid in cash. Some lenders even deliver the cash at the home or office of the borrower. A secured loan is not available for anyone who does not have a bank account or a decent credit score.
- Unsecured loan is easy to get. The process is fast and it is possible to get the cash in one day. Banks take days and in some cases weeks to approve a secured loan. Many people who can otherwise apply for a secured loan consider an unsecured loan simply because it is easier to get. Also, it is possible to apply for very small loan amounts, something banks do not consider worthy of their time.
- Many lenders offer borrowers a choice when it comes to the repayment term. As a borrower, you can choose a term of three months up to a year. In most cases a lender will determine the exact repayment term but borrowers can always check out multiple lenders to find the most suitable proposition. Secured loans are more rigid. There are more standards applicable for such propositions. The unsecured loan industry is more flexible as there are fewer regulations.
Disadvantages of Unsecured Loan
- The most discomforting disadvantage of an unsecured loan is the high rate of interest. It is not true that all unsecured loans have exorbitant interests but most do. You can always try to find a lender that offers a more reasonable annual percentage rate. Chances are such a lender will also have more stringent qualifying factors or eligibility criteria for the applicants.
- Unsecured loan cannot be repaid before the term ends. It is possible to repay some secured loans before the end of the repayment term and many lenders offer an incentive for that. Lenders of unsecured loans do not offer any such incentive. Some lenders may accept an early repayment but without offering any perk.