If you are looking to take out a loan, it is probably likely that you have heard a lot about the differences between unsecured and secured loans. For those with bad credit who do not own a home or a car, there are not many choices. Though secured loans, which offer lower interest rates because you borrow against some type of secured collateral, are preferable in terms of monthly payments and other obligations, for many with bad credit, unsecured loans are the only option left for them.
Availability of Unsecured Loans
The beauty of taking an unsecured loan if you have bad credit is that through the process of taking and repaying this loan you will improve your credit score and make yourself more likely to get bigger loans with better terms in the future. This is especially helpful if you have plans to purchase a home or a car. The utility of online lenders makes it easier for those with bad credit than it was in the past. There are many lenders available through online means that can be found using simple web searches with the term unsecured loan or bad credit loan.
Utility of Unsecured Loans
Unlike many secured loans, which require that you declare exactly what it is you will use the money you borrow to do, unsecured loans will often not ask you for that information. These loans can be used for many purposes such as debt consolidation, home improvements, wedding expenses or college tuition payments. They offer a great deal of flexibility in this manner and therefore are very useful for more reasons than improving your credit score.
The Details of Unsecured Loans
Many lenders online will offer unsecured loans in the amount of £1, 000-£25, 000 and the term that you have to repay this loan can range from anywhere from 1 year to 10 years. These loans are very helpful for students or renters without collateral to borrow against, but can also be used by homeowners who do not wish to leverage their home or already have loans taken out in the form of home equity.
It is important to note though that because these loans have no backing, no guarantee they generally carry a higher interest rate. Secured loans are less of a risk for the lender since if you fall into default they can repossess your car or kick you out of your home. Unsecured loans therefore carry less of a risk to you, the borrower, because you do not need to worry about losing your possessions should you be unable to meet your financial obligations.
Risks and Benefits
It is really easy to find one these days. Though traditional lenders such as banks do offer them, the online lenders are easier to find and often have more relaxed standards in terms of credit rating. Taking an unsecured loan can really be an excellent boost to your credit if you do so responsibly and make sure to make all your payments in full and on time.
However, remember as with any loan, borrowing money comes with risk. Should you be unable to repay this unsecured loan, you will not lose your home or your car, but you could damage your credit report further and make taking loans in the future even more difficult. Make sure you know your obligations before signing the final papers. They can be a great asset to your credit when used correctly.