Usually when you take out a big loan such a mortgage, you have to offer the lender some collateral. Typically, collateral includes valuable property like your home or car, whose worth is around the same as the money you’re borrowing. This is known as a ‘secure loan’, because it provides some guarantee to the lender that you have the means to pay off the borrowed amount one way or the other.

Unsecured loans are the opposite of this because you borrow money without offering up any collateral. The trade-off is that you pay a little more interest because the lender is taking up more risk.

So Why Should You Get An Unsecured Loan Instead Of A Secured One?

Here are just a few great reasons:

It’s Simple

One of the biggest downsides of secure loans is that it can take a long while to get approved. This is because you may have to transfer property titles to the lender and he/she may want to subject all of the documentation to a strict perusal process.

So if you need the money fast or don’t want to go through so much hassle, then it’s best to go through trusted unsecured business loan services instead. Most of the time, these businesses will draw up a simple contract and subject you to a much-shorter approval process.

It’s Fast

A lot of the time, you may even get approved the very same day! Hence, unsecured loans are ideal for financial emergencies like having to pay off a hospital bill.

You Don’t Have To Put Up Collateral

Quite a few people end up losing their homes or cars, if they can’t keep up with payments. That’s why unsecured loans can seem much more appealing to borrowers. That’s not to say that there aren’t any consequences to not paying off your unsecured loans. But at least you won’t lose the roof over your head or your mode of transportation!

Plus you may not have any collateral to offer in the first place! You may be renting out a place or using public transportation to commute to work. In that case, an unsecured loan is pretty much your only option.

What Are the Different Type of Unsecured Loans

Unsecured loans come in several different forms. Here are three of the commonest ones:

Credit Cards

Credit cards are very convenient for splitting up the cost of expensive purchases over several months. Most cards charge you annual interest rates and late fees but at the same time, come with cash-back rewards and discounts.

Personal Loans

Most financial institutions issue small personal loans without any collateral whatsoever. However, you do need to have a good credit score to be eligible.

Student Loans

These are offered to students that have been accepted into college. A lot of students use these loans to pay their tuition and also to cover living expenses. Usually, the repayment period commences once the student has completed his/her degree. Even then, you could sometimes negotiate a longer grace period.

Unsecured loans are saving grace for those who need to borrow money but don’t have collateral to offer up. The process of obtaining one is usually pretty fast and simple as well.