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Planning to Take an Unsecured Personal Loan? Know Your Options

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As a general rule, it’s always a good idea to review all your financial options. There are numerous options available for loans from local Money Lender Singapore or to global level agencies providing all kinds of financial loans. This is one of the best options for loans, but there are some things you should consider before signing on the dotted line.

Here are your options for an unsecured personal loan.

What Are Unsecured Personal Loans?

An unsecured personal loan is a loan that doesn’t require collateral from the borrower. Banks, credit unions, online vendors, and even family friends might offer you this type of loan. In fact, this type of borrowing hit an all-time peak during the pandemic.

There are certainly some takeaways to be learned from that.

Credit cards, lines of credit, and student loans are examples of unsecured loans.

A secured loan offers some time of collateral (a car, home, or another valuable asset) to the borrower in case you can’t pay back your debt.

For this reason, many lenders consider unsecured loan terms and conditions risky. Some lenders don’t offer them at all, while others have stipulations that benefit them.

Higher Credit Is Probably Needed

Whether you’re planning to borrow an unsecured personal loan or not, you should always try to build a credit score that falls in the good to excellent range. Unless you’re borrowing from a personal friend or family member, borrowers use credit scores to determine the risk they’re taking by giving you money. But again, not every personal loan lender needs you to have an excellent credit score!

A credit score of at least 700, if not higher, will help you get approved easily. Those with bad credit scores may still get approved, but you may have to pay higher interest rates that make other lending options better.

They Can Be Used for, Well, Anything

When comparing loan costs, it’s easy to hyperfocus on the terms and conditions of borrowing, as well as the interest that will be paid over the life of the loan.

However, unsecured personal loans offer a type of freedom other borrowing methods can’t. Namely, you can use the money you borrow for whatever you want—to start a business, to finance a degree, or for another project, you have in mind.

For this reason, personal loans usually cap out around $50,000 for most people. High-income earners may be able to borrow more.

When Secured Loans Are Better 

Without having to put up collateral, it seems like taking an unsecured loan would always be the better option. However, that may not be the case.

For example, if you don’t qualify for favorable interest rates, it might be worth putting something of value up to lower the cost of your loan. Even a few interest percentage points could save you thousands over the life of a loan.

(This, of course, assumes you know you’ll be able to pay back the loan.)

The ceiling for borrowing is usually lower with unsecured loans. So if you need to borrow close to $50,000 (around the top end), you may not qualify. In this case, putting up collateral could be the better choice.

Taking Out Loans

There are certainly benefits to taking out an unsecured personal loan. Without having to put collateral up, most of the risk is on the borrower—and you can’t lose your home or car if things go awry.

In some cases, though, you might save money by putting collateral up. Or if you need to borrow more money, a secured loan could be the better option.

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