In the past few years, the financial industry has seen some impressive changes. In the past decade alone, the market has been introduced to cryptocurrencies. Another thing that is changing the world is the concept of unsecured loans. An unsecured loan is one that is given out on basis of trust. It is given out with the hope that the borrower will pay. It is an industry that is powering concepts like peer to peer lending, mobile lending, and online lending. For example, when you look at your local version of Google Play Store, you will find that online lending apps like Tunaiku and Lending Club are some of the most downloaded. In this article, we will look at the best advantages and disadvantages of unsecured loans.
Advantages of Unsecured Loans
Unsecured loans come with several advantages. First, they are easy to access. As mentioned above, you can easily find many online lending apps in Google Play Store and Apple’s iOS. The process of borrowing is very simple. Most lenders just want to see your phone number and identification number. With that information, they can look at your borrowing record and determine whether you are a good client or not. In addition, unsecured loans are not only available online alone. You will find these companies in almost any street that you turn.
Second, unsecured loans don’t require a lot of documents. When you opt for a secured loan, you will need a lot of documents. If you are using your home as a collateral, you will need to produce the documentation. The same is true with all other assets that you want to use. With unsecured loans, all you need is to access money is your identity card or passport.
Third, unsecured loans are processed faster. Online lenders like Tunaiku take just a few hours to disburse the funds. Some of them actually send you the money right away.
Finally, unsecured loans do not need a security. This means that you are not placing any of your valued asset like vehicle or house at the mercies of the lender. As such, you will not lose anything if you are unable to pay the money.
Disadvantages of Unsecured Loans
There are several disadvantages of unsecured loans. First, these loans are usually more expensive. This makes sense because the lender does not have anything to sell if you default. Therefore, they compensate this by charging you a high interest rate. Some unsecured loans charge interest that is above 40%. This is a lot of money to pay.
Second, unsecured loans tend to be a bit small. Because of the risks involved, most unsecured lenders start lending with just a few amounts of dollars. The goal is to learn how you are and whether you are good at keeping your word. They increase your limit as you continue to pay. This is unlike secured loans, which can be big depending on your collateral.
Third, unsecured loans usually have a very short duration. In most cases, the terms of these loans are usually very short. This means that your loan premiums will be very high.
In short, unsecured loans have their own benefits and disadvantages. We recommend that you take time to asses these pros and cons before you decide to take one. Also, we recommend that you pay your loans on time. This will help you get favourable terms in future.