At times of financial difficulties, everyone depends on loans. There are two main types of loans they are secured loans and unsecured loans. The secured loans require the borrower to pledge some sort of property to the lender to assure him that his money will be repaid. Even though there are emergency needs, many of us do not want to pledge our property. For such people this unsecured loan is the best choice. This type of loan will not ask to pledge any collateral. Even though the interest rate is high, people prefer this kind of loan to lower their risk in repayment. There are many benefits associated with this type of loan and few of which are discussed hereunder.
Benefits of Unsecured Loans
The first advantage of the unsecured loan is that, the lender cannot seize the property from the borrower if he fails to repay the loan amount in definite period. Since, there is no pledging of collateral, the paperwork associated with these loans is also minimal. These loans are also offered to those people who do not have a property to pledge. Hence, tenants are also benefited like that of the home owners. The lenders take only little action if the repayment is not done; they may approach the private collection agencies and might urge the repayment. Else they may try to sew the borrower. When the court is approached for such reasons, the case may take at least a year to give judgment. Meanwhile, the borrower can find other means to repay the loan.
Although it is said that the interest rate is high compared to the secured loans, this is not actually a disadvantage, because with high interest rate, the borrowers might have more responsibility and will finish the repayment before the actual schedule. Hence, the interest rate also becomes negligible as that of secured loans. Many times, the loan borrowers face a problem with the terms and conditions of the loan. The amount borrowed must be spent only in certain prescribed manner as directed by the lender. So, the borrower will not have freedom to use his money. But in unsecured type, this option if ruled out. The lender does not indulge in the spending habits of the borrower. Thus, the money borrowed can spend according to our wish.
These loans are also offered to people with poor credit history. Hence, many people take this loan as an opportunity to clear their bas credit history by repaying the loans on time. These loans are given to the person strictly on their repayment capacity and no sort of credit history check is done. Thus, this loan also improves the self-esteem of a borrower. These loans are usually borrowed from the local lender and it is given as a sigh of mutual trust. Hence, getting more and more loans and repaying it promptly will improve the credibility of the borrower.
As such, in unsecured loans there is no certain payback period. The borrower can choose this period based on his preference. These loans are offered almost immediately as it does not require much of documentation. Thus these loans have more benefits than the secured loans.