Unsecured loans are loans that are available to both homeowners and non-homeowners who meet the eligibility criteria specified by the lender. Unlike a secured loan, which is secured against the home, an unsecured loan is based on contract only, and this means that you need to have good credit to qualify for one of these loans, as the risk to the lender is higher than it would be with a secured loan. If you do not have decent credit then you may find it difficult to get an unsecured loan, particularly in the current financial climate, where lenders are increasingly wary about lending to consumers without any form of security. Therefore if you have bad credit your only choice may be a secured loan, for which you will need to be a homeowner.
If you have good credit on the other arm you can love the benefits of an unsecured loan, which is an effective way of borrowing, whilst loving the peace of mind that you are not putting your home at risk. When you take out a secured loan the finance is secured against your property, and this puts you at risk of losing your home in the event that you are incapable to keep up with repayments on your loan. Another risk that you run with a secured loan is falling into negative equity, where you end up owing more on your property than the value of the property, which can happen when house prices fall.
Many people that want to borrow money do not want the worry of falling into negative equity, and in particular do not want the risk of losing their home in the event that they are incapable to keep up with repayments. Of course, when you very first take out a secured loan you will very likely be certain that you can afford the repayments on the loan, but nobody knows what fate has in store, and loss of income can occur in many ways. If your financial circumstances switch and you find yourself incapable to meet repayments the last thing you want is to risk losing the roof from over your head.
With an unsecured loan you will not have these worries, so you can get the finance that you need without these risks. Of course, you should reminisce that compared to a secured loan an unsecured loan offers diminished borrowing power and shorter repayment periods, so you may not be able to borrow as much as you’d like, and your repayments may be higher because of the shorter repayment period. However, many people may choose to have diminished borrowing power and shorter repayment periods rather than put their home at risk.
Secured loans can be a very effective and affordable way of borrowing for homeowners with equity in their home, despite the risks involved, but you may choose the peace of mind that no matter what happens with your loan your home will not be at risk. You should bear in mind, however, that even with an unsecured loan you could severely harm your credit history by missing repayments, which can make your financial future difficult.