Unsecured Loans

Unsecured loans are loans that do not require the borrower to put up any collateral as a backup for the loan repayment. The lender relies on the good faith and promise of the borrower that they will repay the loan as per any agreement made. These are different from secured loans where a borrower will have to sign over an interest in an asset, such as a house or vehicle, to secure the loan.

With a secured loan if the borrower does not repay the loan the lender can seize the collateral and sell it for whatever amount is owed. They do not have to sell the item for its true value and the borrower loses. With an unsecured loan the lender has no recourse for collection of the unpaid debt other than to pursue the issue in a court. The borrower is not risking losing anything with unsecured loans.

Unsecured loans are available from banks, credit unions and other financial institutions if the borrower has a good credit record. Persons with no, poor or bad credit histories can still get unsecured loans but they will pay a much higher interest rate. They may not be able to obtain such loans from a regular bank. The cash advance or payday loan industry specializes in granting unsecured loans to just about anyone who applies.

Unsecured loans from payday lenders are just short term loans for a time period that ranges from about 8 days to a month. The due date for the borrower is their next payday. These types of unsecured loans may serve a purpose for a short term but are not good for long term borrowing due to the very high loan fees that are charged. Fees normally are $15 to $25 per $100 borrowed for every loan term.