Why Sometimes Unsecured Loans Are the Smart Way to Go
Small businesses are presented with a range of unique challenges all the time. Among the more complicated aspects is managing finances and knowing how and when to tap into financing. Accordingly, a borrower may be presented with two major options: unsecured loans and secured loans. An unsecured loan is a loan that has no collateral other than the borrower’s creditworthiness. Also known as personal loans or signature loans, they are issued without assets or property acting as a guarantee in case a borrower defaults.
There are three main types of unsecured loans: These are revolving loans, term loans or consolidation loans.
A revolving loan is an unsecured loan where the borrower can spend the credit limit again and again after repaying the limit. Examples include personal lines of credit and credit cards.
While term loans are mostly associated with secured loans, there are also unsecured term loans which basically specify a repayment duration and either fixed or variable interest rates for monthly loan repayments.
This kind of unsecured loan is a loan designed to pay off credit cards and other borrowings, often at varying rates, by consolidating all debts under one loan at one rate with one monthly payment.
Although a secured loan operates similarly in terms of interest rates and repayment, a lender can take possession of the collateral in case a borrower defaults on repayment.
Benefits of Unsecured Loans
Unsecured loans are accessible by virtually anyone. Strong credit histories and credit scores are the main qualifications for an unsecured loan. Due to their structures unsecured loan applications are processed quicker with less paperwork and documentation. In some cases, borrowers can receive funds in as little as 24 hours.