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How an Unsecured Loan Can Help or Harm

By: Michael Millington

The thing about loans is that they can be helpful or they create problems. Many people have the ability to acquire loans even with poor credit. However, an unsecured loan can cause just as much trouble as a credit card if it’s not paid for on time. Since most things have two sides to the story, we will discuss how an unsecured loan affects you.

The Good Side of an Unsecured Loan

Unsecured loans have some distinct benefits to those who look for a large sum of money in a short amount of time. Whether from a bank or other type of lender, an unsecured loan can provide money in a pinch. The difference between unsecured loans and a credit cards is the amount you can get immediately. While credit cards may only provide you with a few thousand dollars to use (or even less sometimes), an unsecured loan can provide much more. Some lenders allow loans of up to $35,000 based on credit qualifications. This can help if you find yourself in the midst of a financial emergency (such as with a medical bill that needs to be paid).

Aside from the amount you can borrow, an unsecured loan can also help your credit. Taking out a loan helps to diversify your open lines of credit which can increase your score. The increase wouldn’t be significant, but steadily paying off your loan can result in a steady raise in your credit score. Dealing with your unsecured loan responsibly can help improve your record and enhance your borrowing opportunities with lenders.

The Bad Side of an Unsecured Loan

Unsecured loans aren’t always the best lending options, especially if you have bad debt or bad credit. The bad thing about these types of loans is that you might end up paying extra money through higher interest rates. If you have poor credit, you’re left with two options: deal with high interest rates or get a secured loan. If you have no collateral for a secured loan then you would only have one option. Without having other options, you can be painted into a corner.

Also, remember that an unsecured loan needs to be used responsible to be beneficial. If you deal with debt and you decide to take out a loan, it will only add to your existing obligations. Knowing how to deal with your debt can help when deciding upon applying for a loan, but if you can barely handle your debt now it may not be the best decision. In order to avoid negative outcomes, try to avoid unsecured loans in harsh debt situations.