When it comes to managing your finances, flexibility and convenience are attractive features. Whether you’re looking for a loan due to unexpected circumstances, wanting to make a particular purchase, or just wanting some extra leeway in your finances, then an unsecured loan may be a good solution for you. But what is an unsecured personal loan, and is it the right type of loan for your situation?
Understanding unsecured personal loans
When your broker refers to an unsecured personal loan, they are talking about a loan that doesn’t require any collateral. This means that you won’t need to include your home, car, or valuables as a part of the loan deal. Since this type of loan doesn’t leverage off collateral, your credit score, income and financial history will play a major role in whether you qualify for the loan or not.
Benefits of unsecured personal loans
- Physical assets aren’t required
Since the loan is not secured with assets, you do not necessarily need to own property or other assets in order to qualify for an unsecured loan. Even if you do own assets, you might feel more comfortable taking a loan that doesn’t use those valuables as leverage. - Flexibility
Unsecured loans are versatile by nature, and can be used for just about anything you like. Whether that’s a holiday, a big event such as a wedding, or more mundane options such as renovating your home or having your car repaired. - Fixed term
A fixed interest rate is typical for an unsecured personal loan, so you don’t have to worry about the interest on your loan fluctuating with the market.
Who should consider an unsecured personal loan?
Unsecured loans have their benefits, but they are not necessarily a great option for everyone. This type of loan is generally suitable for individuals who:
Have a strong credit history
Since approval for unsecured loans rely on your financial health, a solid credit score and a stable financial background are essential for successfully applying for an unsecured loan with favourable terms.
If you require loan flexibility
If loan flexibility is a priority for you, then an unsecured loan may be a good option. These loans can be used for a wide range of personal needs, including consolidating debt.
Lack of assets, or don’t want to risk valuables
Since unsecured loans don’t require collateral, they can be a more attainable option for people that don’t have major assets such as property. Even individuals that do have collateral to pledge may prefer not to get their valuables entangled into loan deals.
Things to consider before taking out an unsecured personal loan
Unsecured personal loans can be a viable option for those that do not have the assets to pledge for a secured loan. In saying that, these loans do tend to have higher interest rates and since they are often on a fixed rate, there is no opportunity to adjust this with the market. Without collateral backing your loan, your credit score will be impacted if you make late payments and this can make it difficult to secure credit again in the future.
If you’re considering taking out an unsecured personal loan it’s best to get professional advice first. Get in contact with our mortgage brokers to discuss if this is the right loan for you.
