ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

Understanding Unsecured Loans

Updated on November 2, 2019
Nicoartz profile image

I have done a lot of SEO content writing for websites; thus, I have done a ton of research about loans, credit cards, and consolidation.

Understanding Unsecured Loans

Unsecured loans are loans in which the borrower does not require any assets or collateral to pledge against the loan. Generally seen as a safer alternative to secured loans, the money is loaned from the lender on good faith, based on the borrower's credit history, community reputation, and earnings potential. There is no assignment of collateral when the contract is signed. Instead, the borrower signs a promissory note that can contain specific terms and conditions on the loan payment requirements. In some cases, the lender may ask or even require that a co-maker (also called a guarantor) sign the note, promising to repay the debt if the original borrower defaults.

Unsecured Loans Can Be Very Beneficial

Standing Cash
Standing Cash | Source

Benefits of Unsecured Loans

Unsecured loans can be applied to almost anything, including home improvements, college tuition, and even vacations! With an unsecured loan, you won't have to worry about risk to your personal assets being up for repossession should the loan be defaulted. The loans are made entirely on good faith through a written contract. Unsecured loans are paid out in a lump sum from the lender to the borrower and are repaid over a fixed number of payment installments (see time loans). The benefit of most unsecured loans is that you can lock in a fixed interest rate that will not change over the term of the loan contract. These kinds of loans are more popular than secured loans, mainly because risks are at a minimum.

Thanks to a drop in interest rates, unsecured loans have become much more accessible to individuals. Once overshadowed by secured loans, recent years have seen a shift towards unsecured loans with interest rates comparable to that of mortgage interest rates. When coupled with the short-term nature of unsecured loans, the combination makes for a very attractive loan option for anyone requiring additional assets for business or personal use.

Cornucopia of Cash, But Be Cautions.

Cornucopia of Cash
Cornucopia of Cash | Source

A Few Words of Caution

Don't just sign up for an unsecured loan with the first bank that approves you. Shop around for the best rate possible and don't focus solely on the APR. Instead, focus on the Total Amount Repayable (TAR) figure so you know the exact amount you'll pay for the loan over the course of the loan lifetime. By knowing the overall loan total, you can budget accordingly and prevent the hassles and credit nightmare that's associated with defaulting on a loan. It's also important to be wary of financial predators and sharks that will use obscure strategy to try to reclaim the loan money via the court system. If you have sole ownership of property or assets, creditors can go through the court systems with a charging order. If a judgment is enforced, your unsecured loan will be converted to a standard secured loan. This can mean bad news. The district judge will give you payment orders and force you to pay through installments or a onetime balloon payment. If you're unable to make the payments, you'll now risk losing your house and other personal assets!

As with any loan, the most important thing is to arm yourself with the knowledge of each loan type and the benefits and risks associated with each one. Unsecured loans certainly are a safer option over secured loans, but don't take that for granted. If you spend wildly and don't pay your loans on time and in good faith, you may find yourself with a converted secured loan and the potential loss of your possessions. My advice... pay your unsecured loans.

Stop Throwing Cash Down The Drain.

 Cash Down The Drain
Cash Down The Drain | Source

Sum up

As with any loan, repayment is going to be your number one concern. So be sure to do your homework and find the best lender with the lowest rates. Make sure you know the terms of your loan upfront. Check interest rates, see if they are variable or fixed. See when the loan needs to be paid back by. Check what kind of penalties there are for late payments. Don't sign any contracts until you understand the terms. Have the lender explain the terms to you. Only sign once you are satisfied with all the terms of the loan.

Once you have secured a loan, just make sure you pay it on time. Forgetting a loan payment could result in higher interest rates and additional fees. Missing payment can also do a lot of damage to credit reputation.

This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.

© 2019 Jason Nicolosi

Comments

    0 of 8192 characters used
    Post Comment
    • Nicoartz profile imageAUTHOR

      Jason Nicolosi 

      5 months ago from AZ

      Thank you so very much for taking the time to read the article, Lorna. I truly appreciate your time and comments.

    • Lorna Lamon profile image

      Lorna Lamon 

      5 months ago

      Great article Jason and good advice. Interest rates are at an all time low at the moment,however, as you suggest it is always better to shop around and find the best deal for you. Reading the small print can save you a lot of grief later on. This type of article is so useful.

    working

    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, hubpages.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: https://maven.io/company/pages/privacy

    Show Details
    Necessary
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the googleapis.com or gstatic.com domains, for performance and efficiency reasons. (Privacy Policy)
    Features
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Marketing
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Statistics
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)
    ClickscoThis is a data management platform studying reader behavior (Privacy Policy)