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Unsecured Personal Loans: Pros and Cons

First of all, it’s necessary to explain what an unsecured loan is. It’s a credit product which doesn’t require putting something as collateral. For example, if you default on a mortgage, the bank can take away your house to get the part of their money back. If your loan is secured against your car and you fail to repay it, you may lose your vehicle. Unsecured loan is called so because it’s not secured against something so in case you default on it, you harm your reputation and your credit. As every loan, it has its pros and cons. Let’s figure out what they are! Then it will be easier for you to make a decision whether to apply for it or no.

The Pros

No Risk of Losing Your Property

As mentioned above, there are secured personal loans. If you default on such a loan, the lender can take the collateral so such loans can be risky for borrowers. As for unsecured personal loans, there is no need to put any personal property as collateral. Thus, there’s no risk to personal property and in case of default you don’t lose anything. However, you still have to be responsible and make timely payments!

Easy Application Process

Getting a personal loan can be complicated when you try to get one from a bank or a credit union . Fortunately, everything is easier with unsecured loans. They are provided by numerous alternative lenders. For example, to get a loan from Personal Money Service all you have to do is to fill simple application form and meet a few basic requirements. If you want to borrow money with no hassle and don’t want to put your personal assets under the risk, then an unsecured is a perfect choice for you.

The Cons

Smaller Loan Amounts

You know that the lenders make money by charging interest rates. What happens if the borrower doesn’t pay the loan back? The lender doesn’t make any profit and just loses the money. Unsecured loans are good for borrowers but they are risky for lenders and that’s why lenders provide smaller loan amounts. Also, they check credit reports and verify employment because they need to make sure that the borrower has a steady income and able to pay back. Loan amounts can be very small for those who have low credit.

Higher Interest Rates

We already mentioned that unsecured loans are risky for lenders. Let’s add some details: if the loan is not backed by any assets and the borrower fails to pay it back, the lender just loses the money and gets nothing in return. That’s why normally lenders charge quite high interest rates to justify the risk. Also, keep in mind that lenders may hide a portion of high interest rate charging loan origination fee or loan application fee. Higher interest rates also lead us to the other point: bigger loan payments. The higher interest rate is, the bigger are loan payments you should make.


Unsecured personal loans have their obvious advantages. Getting such a loan is simple and you don’t have to put your personal assets under the risk. It’s a perfect option for people who don’t want to take a risk and want to borrow money quickly and with no hassle.

As for disadvantages, consumers considering unsecured loans have to keep in mind higher interest rates and loan payments. Depending on repayment terms, such credit products can be quite expensive.

Taking out a loan shouldn’t be an impulsive decision. Define and understand your goals. Think what is more important for you: to avoid risks or get a loan with low interest rate.

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