What are Unsecured Loans?

Unsecured loan refers to any type of debt that is not protected by an asset. Unsecured loans are like your traditional loans where the lender is in a position of  a higher risk as they are not protected by any collateral if the borrower faces bankruptcy. This differs from Secured Loans.

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Types of Unsecured Loans

- Credit cards

• Most common form of unsecured loan. Using a credit card to purchase an item is a form of borrowing as we are paying using our credit

- Student Loans

• Although some people take cash out of their homes to pay for school, pure student loans through the Department of Education are typically unsecured.

- “Personal” Loans

• Available from banks, credit unions, and online lenders are unsecured loans you can use for any purpose

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Pros of Unsecured Loans

You don’t risk losing your property – Absence of personal  collateral, thus no risk of losing it.

Easy Application process – There are other numerous lenders and getting a personal loan through a bank can be complicated.  The process is easier with unsecured loans.

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Things to Look out for

Smaller Loans - good for borrowers but riskier for lenders. Lenders prefer providing smaller loan amounts, as without security, the risk of not regaining their money is greater.

Higher interest rates – Lenders charge a higher interest rates compared to Secured Loans due to the risk they posses   in providing unsecured loans.

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