15 May Business Financing: The Pros and Cons of Unsecured Loans
There Can Be Many Types of Loans in the World of Business Financing, Unsecured Loans are One Option
Whether you want to expand your business, pay off a long-term business debt, or start a business, unsecured loans can be the way to go as they can be multi-purpose. But the question is, when is the right time to take an unsecured loan? And will an unsecured loan be the best choice for my business? Before knowing that, you must get acquainted with the basics if an unsecured loan. Read along to get a detailed insight into it.
What are unsecured loans?
Unsecured loans do not have anything that secures or guarantees it. If you fail to repay, you are at a lesser risk because there isn’t any collateral that protects the loan. Having said that, you cannot get away without repaying the loan for obvious reasons. It is more risky for the lenders to lend an unsecured loan because there is no immediate legal tie that can pursue the repayment. Because of the stated reasons, it is not always easy to get unsecured loans.
The lender needs to trust you and your financial ability to repay the loan. If you have a good credit score and a clean financial record, you have greater chances of getting unsecured loans.
Types of unsecured loans:
- Signature loans – This type of unsecured loan allows you to borrow money for anything which you have to pay back on a monthly basis. With a good credit score, you may be able to get your hands on lower interest rates. Signature loans are offered by credit unions and banks.
- Credit Card – Whenever you are in an urgent need of money, you can use a credit card. It may not give you the amount of money that a signature loan can, but you have the chance to borrow money whenever you need. This is very convenient but if you are not careful, you could end up paying a huge debt.
- Student loans – Student loans are used for educational funding purposes. These loans usually come with good grace periods, flexible repayments options and interest subsidies.
What are the chances that you might not get an unsecured loan?
Whether you are eligible to get an unsecured loan depends on your credit score and your financial record. If you have an acceptable credit score with a reliable financial ability, you are likely to get a good rate of interest with the unsecured loan. However, if you have a bad credit score to begin with, the chances are slim.