Simply put, these are the kind of loans that are extended to borrowers by lenders without the former having to provide collateral of any kind. The name signature loan is also used to refer to this kind of loans. The name signature loan comes from the fact that all a borrower is needed to provide in order to receive the loan is their signature. There is a lot of risk on the side of lenders when they extend these kinds of loans and that is why they sometimes charge higher interest rates or demand good or excellent credit scores.
In case the borrower decides to default on loan repayment, the lender usually doesn’t have much they can do to recover the amount borrowed except to take legal action. Some lenders usually choose to bear the financial loss that comes from such defaulting borrowers. Seizing property of the borrower is usually not an option without first having to go through the proper legal process.
Pros of unsecured loans
There are several advantages that come with lån utan säkerhet that borrowers get to enjoy and the first one is the lack of collateral needed. Like stated above, the lender doesn’t ask the borrower to provide any collateral in form of property that they can seize in case the borrower defaults. Secondly, these kinds of loans are usually processed much faster, meaning that as a borrower, you will have money in your hands in no time. This aspect of unsecured loans makes these loans very useful in times of emergency where one needs to access funds that they don’t have fast.
The lack of collateral means that the borrower is not at risk of losing their assets even if they default on loan repayment. Comparatively, unsecured loans have fewer restrictions and people with great credit often access the loans at competitive rates.
Cons of unsecured loans
If you have a low credit score, unsecured loan might not be the best option for you because you will meet some of the worst terms. People with poor credit score are considered to have high likelihood of defaulting on their loans and that is why borrowers will ask for higher interest rates and imposes many other harsher terms and conditions.
Secondly, being approved for an unsecured loan is not something that happens that easily. Lenders scrutinize borrowers more closely to ensure that they qualify for the loan before they extend it. Most people who apply for these don’t get them, especially those with poor credit scores.
Who should get an unsecured loan?
You might be wondering why someone would want an unsecured loan when they have higher interest rates and are harder to get approved for. Well, people settle for unsecured loans when they higher reliable income and are sure of repaying it. For instance, if you have employment that is well secured and you have been at it for long enough, you can go for an unsecured loan knowing that you can repay it. Secondly, people who are planning for large purchases find unsecured loans to be a very good option for them.