An unsecured loan is any loan that does not require collateral. These may include student loans, credit cards, personal installment loans, and payday loans. While a secured loan is given to a borrower based on their collateral, an unsecured loan is offered based on the borrower’s creditworthiness and promise to repay.
Loans will always either be secured or unsecured. There are many common examples of both in everyday life. Common secured loans include auto loans, mortgages, title loans, and secured credit cards. Securing the loan with some sort of collateral offers an added layer of protection for the lender. This way, if the borrower defaults on the loan the lender will simply take the collateral to cover their loss.
Unsecured loans are just as common. And if you’re a borrower with a less-than-perfect credit score or borrowing history, you may be more inclined to choose an unsecured loan. Ultimately, there’s slightly less risk involved in these loans, since you won’t lose a valuable item if you can’t repay the loan. That being said, defaulting on an unsecured loan can still have many financial consequences.
If you need quick cash and you don’t want to risk losing your collateral then you may want to consider one of the following options:
- Traditional bank loan
- Credit union loan
- Personal installment loan
- Payday loan
Keep in mind, that just because you aren’t risking any collateral doesn’t mean you should take these loans lightly. Your goal should always be to make your payments on time, in full, and repay the entire loan by the agreed upon due date. Missed or late payments can lead to additional fees and potentially defaulting on your loan. These things can remain on your credit report for years to come.
The good news is that by making on-time payments, reducing your overall debt, and lowering your credit card usage, you can improve your credit score in the long run. This will help you to qualify for better loans in the future.