As with anything in life, it’s always a good idea to do your research to ensure you’re making the best decision for your situation. That’s especially true when it comes to taking out a loan, and understandably, many people are hesitant when thinking of taking out an unsecured loan.
Unsecured loans, also known as no-collateral loans are personal loans that aren’t directly tied to a physical asset. Secured loans, on the other hand, are based on the value of a home, automobile, or other tangible assets that the bank can take ownership of if a borrower defaults on the loan.
An unsecured loan, by definition, has no physical asset from which to base its value, so lenders base the unsecured personal loan amount on a borrower’s creditworthiness. This makes personal unsecured loans safe for you, as most of the risk is placed on the lender.
That’s not to say there’s no risk to the borrower, but an unsecured loan is certainly safe for anyone with a good credit score who can meet the terms of their loan.
Are secured loans better than unsecured loans?
Neither secured loans nor unsecured loans are necessarily better, as they’re both used for different borrowing needs. For big-ticket items, such as a home or automobile, a secured loan is usually better simply because the amount you’re able to borrow is based on the item’s value.
Secured loans generally have lower interest rates, also, because there’s less up-front risk to the lender. A bank can easily seize and sell the asset if a borrower defaults on the loan. While banks will almost always work with a borrower before taking such steps, a secured loan still puts the borrower at risk of losing their asset if they miss a payment.
Unsecured loans are often easier to apply for due to the availability and accessibility to online bank loans. Since unsecured online loans don’t involve an asset, there’s no paperwork required to prove ownership. Lending decisions are based on employment status, credit scores, debt-to-income ratio, and other crucial factors to paint the whole picture of an individual’s financials.
Although there is, theoretically, less risk to the borrower with an unsecured loan, if you are late or miss a payment, you would go into a collections process. This would also have a negative effect on your credit score, seeing as Helix does report payments and non-payments to all three major credit bureaus. ore severe steps such as a lawsuit are sometimes taken. However, assets can still be seized if the courts issue a judgment on your case, so nonpayment has harsh consequences. Here at Helix we always work with our customers in their time of need, and we believe all lenders should. If you’re having an issue making a payment, please contact our Customer Service team to see how we can work together to continue to build your credit and keep your loan in good standing.
Unsecured loans generally carry slightly higher interest rates because of the bank being at higher risk, and the terms of repayment are more short-term than many secured loans, that being said, unsecured personal loans are a great option when you don’t have collateral to put up yet need extra money in a hurry.
Could an unsecured personal loan hurt your credit?
Unsecured loans don’t have any more impact on your credit score than secured loans. Either one will show up as a new line of credit in your credit score. As long as you make payments on time, build a strong credit history, and are cautious of your debt utilization ratio, an unsecured loan is safe for your credit score.
Unsecured loans will only hurt your credit if you’re late on payments or go into default. This is true for any type of loan or credit line; however with on-time payments, you’ll be building your credit history and growing your credit score.
Are there drawbacks?
There are positives and negatives to any type of loan, but as long as you go into your agreement with full knowledge and a plan to meet the terms of payback, you’ll have the money you need so you can go about the rest of your life with solid peace-of-mind.
Unsecured loans are a great option for many individuals, but as with any personal loan, you should go into your agreement with a list of all the advantages and disadvantages:
Advantages of an unsecured loan
- Credit check that only affects your credit score in the short term
- Less effort than applying for a secured loan
- The application can be done online within minutes
- Quick access to borrowed funds, usually within one business day
- No collateral required
Disadvantages of an unsecured loan
- Higher interest rate than secured loans
- Overall lower loan amount than collateral-based loans
- Shorter payback terms
- A default will result in a damaged credit score, collections, and potential lawsuits
Why apply for an unsecured loan?
There are endless reasons why people apply for unsecured online bank loans, and most of them come down to speed and convenience. The online loan application process requires only a few minutes of your time and very basic information; plus online banks generally do credit checks that don’t affect your credit score in the long run.
Funding for unsecured online bank loans usually occurs within a single business day, so you can have the money you need when you actually need it. Most borrowers use unsecured loans for urgent needs such as unforeseen emergencies around the house, with vehicles, or for medical expenses not fully covered by insurance. Please keep in mind that if you apply for a loan after 4:00 PM it will take longer to process during the next business day. The same applies if you apply over the weekend.
Some borrowers take out unsecured loans for home improvements, debt consolidation, or other financial needs where credit card interest rates would be too high.
With an unsecured online bank loan, you also get the benefit of a set payment amount over a specific time frame. It’s a huge stress relief to know that you were able to get the money you needed while being able to plan for exactly what it will cost you per month to pay back.
Once you’ve decided that an online personal loan is right for you, submit an unsecured personal loan application through to Helix. It takes just a few minutes to apply, you’ll get a decision back within seconds, and you can have the money you need when you need it.