Unsecured loans do not require collateral. You can get the money without having to offer your assets to the lender as security. This type of loan is good for individuals and businesses that want to borrow small amounts of cash. In some cases, the lender will ask for a written personal guarantee that the loan will be repaid. Taking out such a loan means that borrowers can’t get a high amount with each lender having its own limit. Interest rates also tend to be higher than those charged for secured loans. However, borrowers still receive a lot of benefits including the following:
Less Risk
Since there is no need to provide collateral, borrowers won’t have to worry about the possibility of losing their assets in case they fail to make a repayment. The level of stress is substantially lower than the people who take secured loans. This is priceless. People won’t have to be afraid of losing their homes or their cars if they encounter a bump on the road. They won’t have to give up their business or a major property just to fulfill their obligations.
More Flexibility
Lenders are also more flexible when it comes to offering repayment terms to their borrowers. Since we are talking about small amounts, the whole loan can be repaid in as short as a month. It could also be as long as a few years. The wide range of options is great for borrowers who might need to reduce the monthly payments to a certain level to ensure consistency. Some lenders might also be able to arrange different terms than the ones initially agreed upon, depending on the circumstances.
Possible Loan Increase
Secured loans and collaterals have a close correlation. You can only borrow a certain amount if your collateral falls within that value. As such, you typically have to repay the whole amount before you can borrow again. It’s quite different with unsecured loans since the amount is not tied to anything. As long as you are able to make several payments consistently over a certain period, the lender might be willing to lend you even more money. This makes it a good option for companies that have a steady cash flow and lots of expansion plans.
Repayment Holiday
The repayment of loans usually happens on a periodic basis: weekly, monthly, or quarterly. However, some lenders may agree to provide a repayment holiday for a specified timeframe. This is like pressing the pause button in case the borrow needs a reprieve. Check if your lender allows this.