Unsecured personal loans are one of the more popular financial options for individuals looking to build their credit or finance expenses and purchases. They’re not overly difficult to get and offer many benefits, but there are also a few drawbacks to keep in mind. If you’re trying to decide whether to apply for an unsecured loan, here are some pros and cons:
Pro: Personal loans are easier to manage and budget
Borrowing a set amount of money and paying it back in fixed monthly payments is an easier process to manage than other, more complicated lending options. The borrower knows in advance how much they’ll need to come up with each month. They can base their decision to take out the loan on whether they can meet the repayment terms.
Pro: Instant approvals can get you fast funds
Many unsecured personal loans come with quick or instant approvals. That means that the borrower could get an approval within a few minutes, and funds in their bank either the same day or within 24 hours. This is a big benefit if you need the funds to cover an immediate expense, like rent or an unexpected medical bill.
Pro: No collateral required
Unsecured personal loans do not require collateral from you to secure approval from the lender. This can speed up the approval process and ensure that you won’t need to worry about losing property if you can’t make your payments on time, which can remove a lot of stress from the borrowing process.
Pro: Can be used for any expense
Unsecured personal loans can be used for practically any expense. The borrower is not required to state a purpose for applying and the lender won’t ask why you need the loan. This is different from specialty loans like auto loans and mortgages, where the money is earmarked for a specific purchase.
Con: Can temporarily decrease credit score when you apply
Applying for an unsecured personal loan results in a hard inquiry on your credit, which can slightly lower your score. Luckily, this effect is only temporary, and will correct itself after you make on-time monthly payments for a few months.
Con: Can come with higher interest rates than secured loans
Secured loans have lower interest rates than unsecured loans because the lender has the collateral as a physical guarantee that you’ll pay the money back. Lenders take on more risk when they approve unsecured loans, so these loans can come with higher interest rates. But luckily, you can still find an unsecured personal loan with good rates and terms by doing some research and comparing options.
The bottom line
Unsecured loans are a great way to get the funds you need fast. They’re easier to manage and budget, instant approval is available, there’s no collateral required, and they can be used for any expense. Although your credit might dip a bit and interest rates can be higher, these loans can still be a great way to get quick cash. Make sure to do your research and compare options to find the right loan for your needs and budget.
Notice: Information provided in this article is for information purposes only. Consult your financial advisor about your financial circumstances.
Name: Michael Bertini
Job Title: Consultant