Basic Facts

What You Should Know About Unsecured Loans

Unsecured loans are a great solution to certain financial problems but before getting yourself into this option, it is best to educate yourself. Information is available online. By being well-informed, you will have better judgment on whether you need and whether you should get into unsecured loans or not.

So what exactly are unsecured loans? The best way to define them is that they are acquired without any collateral. Hence the term “unsecured”. Unlike “secured” loans, in these type of loans the borrower does not put any valuable property at risk.


As far as unsecured loans are concerned, anyone who obtains it has agreed to pay back the loan in a given amount of time. Documents are signed to attest the validity, formality, and legality of the transaction. This is why unsecured loans are called signature advances. You can even go online shopping using these funds.

The best example of unsecured loans is when you borrow money from your family members or friends. In most cases, no papers are signed. The only collateral is your word of honor. In this type of transaction, it is best to consider who the lender is and who the borrower is.

Another common example is the use of credit card. Whether you use it to make an online payment or pay for shopping at the local store, you are incurring unsecured loans. The best way to put it is that you authorize the payment through the card. The fact that you allowed this transaction using the card represents an agreement that you will pay for the purchases at a later time.

Using the card for unsecured loans also subjects you to the terms set by the credit card company. Unlike home property ownership where the loan is based on the collateral, unsecured loans sets an agreement. In most cases, if the unsecured loans are not paid within the timeframe set for payment, additional fees are charged. If the borrower is still unable to pay, he or she may incur credit rating damage.

Some critics claim that it is best to pay cash. However, certain transactions like online shopping, online gaming, or any other online transaction may require the use of credit card. Online transactions may be an exception but for other purchases, paying cash is the best option.

Apart from what are mentioned above, payday advances are another type of unsecured loans. Today, there are hundreds of online companies offering payday advances. The best thing about applying for payday advances through non-traditional lending institutions is that the processing is fast. Often, it only takes a day or two. In addition, these companies are one of the best sources of unsecured loans if you have poor credit rating.

The only drawback to unsecured loans is that they have higher interest rates compared to secured and other types of loans. However, if you know where to look, you sure can find best unsecured loans packages that have reasonable interest rates.