At one time of another, we have all been tempted to borrow money. This is especially true when the loan is unsecured and we don’t have to put up any collateral. However as alluring as they may sound, it’s important to remember there are always consequences for our actions. Let’s take a look at the pros and cons that come with this type of lending:
Pros
Qualifying: Those with average credit scores and above can usually qualify for at least some sort of unsecured lending, whether it be a credit card or regular unsecured loan.
Convenient: The biggest allure of this type of lending is that it is an easy and convenient way to get money.
Versatile: Since there are several different types of unsecured loans out there, an applicant has a wide array of payment options, interest rates, and other benefits to choose from.
Cons
High Interest Rates: Because an unsecured loan is not backed by any collateral, usually the interest rate is high, sometimes it is extremely high. This can be a major pitfall if the applicant won’t be able to pay back the loan in a timely manner.
Lower Amounts: Unlike a secured loan (such as a mortgage) something like a credit card will have a much lower limit. According to Mike Ackermann, a staff writer at CreditCardForum.com: “Nowadays most credit card deals come with extremely low spending limits. This is due to the poor economy and high unemployment.”
High Fees: Depending on the type of unsecured loan, you may end up with a barrage of expensive fees along with it. This is especially true with credit cards. Now that the credit card reform has put restrictions on interest rate hikes out of the blue, banks are looking for other ways to make up lost revenue through higher late fees, annual fees, dormant account fees, and others.