Getting an unsecured personal loan is an option to get instant access to cash when you need it. Of the different types of personal loans unsecured loans may not be your best option, but they do have advantages, too, that could make them work for you. As such, before you even apply for an unsecured personal loan, be sure that you know every nook and cranny of the loan that you are contracting.
If you are trying to find out more about the different types of personal loans unsecured ones are those that do not require a property as collateral, among other characteristics. As a result, the risk on the part of the creditor is higher. The creditor may balance this out by imposing a higher interest rate. It is also worthy to note that an unsecured personal loan is different from a mortgage or a home equity loan.
Also, among the different types of personal loans unsecured ones are those that are not guaranteed either by property or by another person who acts as guarantor or surety. You should also expect higher interest rates from unsecured personal loans. But although the rates are higher than those of home equity or mortgage loans, they are also lower than credit card rates.
Like other personal loans unsecured loans have varied terms, although the payment terms are always fixed. This means that you can get an unsecured personal loan for a period of three months to one year, depending on the contract. There are also some that offer a revolving credit line. The revolving credit line works like a credit card, in that it automatically allows you to borrow an amount equal to your previous payment. Another feature that you should know is that unlike the other types of personal loans unsecured loans do not come with tax benefits. The interest rates that you pay on an unsecured loan is non-tax deductible.
Unsecured personal loans are especially recommended for those who don’t own their homes to mortgage. An advantage of personal loans is also the fact that they compel you to stay disciplined, in terms of keeping track of your payment due dates, and staying current with your payments. In contrast, credit card loans are not as stringent, and give you the leeway to spend more than you can actually pay. Having a credit card that you can always take out can easily tempt you to swipe, especially on big-ticket items that you haven’t really planned on buying.
These are just some of the advantages of unsecured personal loans. When it comes to the disadvantages, there are actually only two that you need to remember: first, that you can’t deduct your interest payments from your income for purposes of taxes; and, second; be ready to pay as much as 10 percent as interest, which is higher than when your loan is secured.
Despite these disadvantages, an unsecured personal loan is still a better option than using your credit card. This is especially the case if you are making cash advances because credit card companies charge you outright when you withdraw, on top of the regular interest rates.