Unsecured personal loans may be your best option when you need funds and you need them quickly. The problem is that most people do not do their homework before applying any type of loan and may learn they should choose a different path. Keep reading to learn the ins and outs of personal loans so you can make an educated decision on choosing unsecured personal loans.
Unsecured personal loans are not the same as home mortgage loans or home equity loans. With an unsecured loan, there is no type of collateral for the loan, thus this type of loan offers more risk to the lending company.
What to expect from unsecured personal loans
No collateral needed – unsecured personally loans are not guaranteed by putting up your home or other property as a guarantee of repayment of the loan.
Higher interest rates – since the unsecured personal loans do not require collateral the interest rates are higher than other loans, however are usually lower than the interest rates on most credit cards.
Terms are fixed – unsecured personal loans are always due at a specific time set forth in the terms, which makes the interest rate fixed as well.
Line of credit is revolving – if you choose this type of unsecured personal loan it works similar to a credit card, which will make the interest rate variable instead of fixed.
Not tax deductible – the interest on unsecured personal loans are not tax deductible.
For those that do not own a home or have enough equity in their home, unsecured personal loans may be the best answer. The good news is that since the terms are fixed you will have to pay on time and pay back within the time frame set forth in the terms, which is better than using a credit card with the temptation to spend more and more only paying the smallest amount possible. In addition, since the interest rate is better with an unsecured personal loan, you will be off in the long run than using a credit card.
The disadvantages of unsecured personal loans is that the interest paid is not tax deductible and the interest rates can be more than 10% while mortgage loans and equity loans are often much less. You will pay more for an unsecured personal loan than using your home as collateral; however, on the flip side you will be risking your home.
Unsecured personal loans may be the best way to go for most individuals even if they do own their home and do not wish to use their home as collateral. No matter the reason why you need some quick cash, unsecured personal loans are better than using your credit card.