If you are looking for quick loan without having to put up collateral to secure it, then unsecured loans can be a good choice. Do you have really bad credit? Then a payday loan may be your best option. Would your living room look great with a new couch? Perhaps a revolving line of credit might work better. No matter what type of unsecured loan you choose, it is necessary to understand all the features of unsecured loans, as there can be many differences among them.

What are unsecured loans?

Unsecured loans—sometimes called “personal loans”—are loans that do not require any collateral. To acquire an unsecured loan, borrowers are accepted based on their credit history and ability to repay.

What are the various types of unsecured loans?

The two most common types of unsecured loans are personal loans and lines of credit.

* Personal loans have a set payment schedule based on the amount borrowed and applicable interest rates.
* Lines of credit are used much like credit cards, with banks extending a certain limit for customers to borrow against. There is no fixed repayment time, as borrowers can keep borrowing and repaying indefinitely. There are, however, minimum payments that must be met in order to remain in good standing with the bank.

Other types of unsecured loans may include:

* Payday loans require a post-dated check in order to be paid out. Lenders collect a fee up front and then continue to tack on interest and fees if the borrower extends the repayment terms. A borrower’s credit rating is generally not taken into account for approval of payday loans. All that is required is proof of income.
* Credit card loans are not unsecured loans in a traditional sense. However, they do not require collateral and are issued on the same principals as other unsecured loans—credit rating, interest rates, etc…

What are the benefits of unsecured loans?

* There is no collateral required to obtain an unsecured loan.
* Using an unsecured loan frees up homeowner equity and allows homeowners the freedom of knowing that their homes are not in danger of repossession.
* Unsecured loans typically have a lower repayment term than secured loans.
* Lenders provide better interest rates to people with higher credit scores.
* It takes less time for banks to approve unsecured loans.
* Borrowers can use unsecured loans to purchase whatever they wish.
* Interest rates can be lower than credit cards.

What are the drawbacks of unsecured loans?

* Unsecured loans generally have higher interest rates than secured loans.
* Lenders have stricter credit requirements since there is no collateral.
* While unsecured loans to not have direct attachment to a borrower’s property, lenders can find ways to make liens against the property of borrowers who default on repayment.