Unsecured Loans For Personal Consumers

Unsecured personal loans are loans given to individuals based on the strength of their credit. The fact that they are unsecured means that they are not supported by any collateral - as is the case with a mortgage or a home loan. These loans come in a variety of forms, from credit cards to lines of credit, but they carry various strengths and weaknesses over other types of borrowing.

Interest Rates

Depending on your personal credit, the rate for an unsecured personal loan may range from reasonable to very high. These rates are generally higher than the rates associated with secured loans because in those loans, the lender has something of value that can be acquired and sold if

the borrower fails to properly service the debt. Even though the collateral may not fully cover the amount of the loan, and the process of acquiring and selling the property is often complex, time-consuming and expensive, it is still able to afford some protection to the lender. In the case of an unsecured personal loan, the lender has no recourse against the borrower other than simply obtaining a judgment to affect the repayment.

Credit cards are example of unsecured personal loans and demonstrate the often high rates that lenders may charge. The credit card company can charge fees, impose penalties, and send you to collection, but ultimately the process of "forcing" a borrower to repay the balance held on a credit card is usually prohibitively expensive. The credit card company would rather sell the debt to a collection company that has calculated the probability of getting paid, than run the risk that they will get nothing.

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