Unsecured loans enable people to borrow money for virtually any purpose they desire.
People use unsecured loans as a means to consolidate their existing debts into a single monthly obligation.
They also use unsecured loans to pay for fees associated with starting a business. People who seek unsecured personal loans also use the available funds to pay for things they otherwise wouldn’t have had the funds to buy, such as a new car.
Although unsecured loans allow people to essentially buy things ahead of time, it’s pretty important to learn about this type of loan before taking it out. After all, it’s still a debt you have to take on.
What’s an unsecured personal loan?
An unsecured loan is a type of loan in which there’s no collateral or property used to secure the loan.
Secured loans, to provide an example, typically use collateral or a type of property in order to guarantee the payment of the loan to a lender.
If the borrower fails to pay back the loan, the lender has the right to sell off the collateral in order to collect the remainder of what the borrower may have to pay.
Unsecured loans, on the other hand, put no immediate risk on the borrower. Since they don’t have to use collateral as security against the loan, they don’t run the risk of having that collateral repossessed should they fail to repay the loan.
Money lenders, however, do take on more risks when they issue an unsecured personal loan to borrowers. If the borrowers fails to pay, they won’t be able to use any collateral since, well, the loan isn’t a secure loan. On occasion, lenders do take legal action against borrowers who fail to repay their loan. Lenders also tend to charge higher interest on unsecured personal loans, since they take on more risk.
What types of unsecured loans exist?
Several types of unsecured loans exist at a local licensed money lender in Singapore. The types of unsecured personal loans available to a borrower usually depends on their credit history and credit score.
Signature loans. This type of loan is available at a bank or a local licensed money lender in Singapore. Borrowers generally have to pay off this loan in monthly installments, usually a fixed payment, until the loan is completely paid off. These loans also come with a relatively low interest rate, as long as the borrower has good credit.
Payday loans. A payday loan is much like the usual signature loan. What makes it different is that’s often ‘secured’ against the promise that the borrower will repay the loan by their next monthly paycheck. These loans tend to be high interest with little funds compared to other types of unsecured loans.
Credit card loans. This is the most common way to take out an unsecured loan. Credit cards give borrowers a certain amount of available funds, which usually goes up after a certain amount of time. Credit card holders generally get increased credit if they maintain their monthly payments and/or if they maintain a good credit score. Interest rates tend to be high for most borrowers, even if they do have good credit.