Studies have shown that the average person does not have enough money in their savings account to cover large purchased and/or unexpected expenses. This means that most people will need to get finance at some point in their lives. People who are interested in applying for loans need to be aware of the difference between unsecured and secured loans.
What Are Unsecured Loans?
The term "security" is used to describe an item secured against a loan. For example, a person may take out a loan using their car as security. If they do not make loan repayments, the lender will repossess their car. This type of loan is a "secured loan". Unsecured loans are loans which have no security leveraged against them. This means that if the borrower does not make repayments on their loan, the bank or finance company cannot repossess their home, car or personal belongings. Instead, the bank will take the borrower to court to recover the money.
Why Do Banks and Finance Companies Want Security on Loans?
Banks and finance companies like to lend money to a very specific type of person. In their eyes, the ideal borrower has spotless credit, a secure job and a good income. If a borrower does not fit into this description, they are considered to be risky. For example, a person who moves home every six money is more likely to run away with the money than someone who has been at their home for 10 years. If the bank considers a borrower to be "risky", they will want to know that they have some way of recovering their money. If a loan is secured, the bank can repossess the item and sell it for cash. They can then use this cash to pay off the loan.
What Are the Advantages of Unsecured Loans?
The biggest advantage of getting an unsecured loan is that goods will not be repossessed if something was to go wrong. Many borrowers believe that this will not be an issue for them as they will always make full repayments. However, it impossible to predict the future. If a borrower suffers from an injury or loses their job, they may have trouble paying their bills.
Getting an unsecured loan is not difficult. All one needs to do is approach a lender. Most lenders will not require security unless the applicant is risky or wants to borrow a large amount of money. It is important to remember that every lender has different credit criteria. Due to this, it is important to shop around. One lender may not give the client an unsecured loan while another might. Those who have bad credit may want to consider getting payday loans. Payday loan lenders do not perform credit checks on their clients. People who need to borrow less than $2000, may be better off with a payday loan lender. These loans are a great way of dealing with immediate expenses such as car repairs and overdue bills. If applicants need more than $2,000, they will need to contact a traditional lender.