Introducing the types and differences between secured and unsecured loans,An unsecured loan is a loan that does not require collateral when borrowing money.
Card loans from banks and consumer finance companies, and credit card cash advances are generally unsecured loans.
We will explain why it is possible to borrow money without providing collateral, how it works, its advantages compared to secured loans, and points to note when using it.
Unsecured loans are a system in which loans are made based on the applicant's "credit."
Because there is no collateral to guarantee repayment, it is particularly important that the applicant has the ability to repay. We assess whether the applicant can repay the loan without any problems, and if it is determined that the applicant does not have the ability to repay, the loan will not be granted. Ability to repay is judged comprehensively based on income situation, borrowing status from other companies, years of employment, years of residence, etc.
Types of Unsecured loans
There are several types of unsecured loans available, including personal loans, credit card loans, and student loans. Personal loans are the most common type of unsecured loans and are often used to finance large purchases or consolidate debt. Credit card loans are another type of unsecured loan, but they have higher interest rates and fees. Student loans are also unsecured loans used to finance education, but they have lower interest rates and longer repayment terms.
Unsecured loans are very suitable for most people in the modern society. They are very popular because you can get a loan of a certain amount to solve urgent needs without the collateral of assets.
If you have ever taken out a loan for any reason, such as buying a house or a car, you may have heard of the word guarantor.
The role of a guarantor is to repay the loan on your behalf if you are unable to do so due to circumstances.
Since it is a product for borrowing money, some people may wonder whether a guarantor is necessary.
Two advantages of unsecured loans
Unsecured loans have the following advantages over other borrowing methods and loan services.
Faster screening time than secured loans
Free to use
Free to use
Unsecured loans are for any purpose, meaning there is no question about how you use the borrowed money. You can use them for a variety of occasions, such as for living expenses and travel.
Many loans have limited uses and cannot be used casually. If you have no money until payday, or if you have a wide range of uses for your money, and it is difficult to set a borrowing purpose, you should definitely use an unsecured loan.
Two disadvantages of unsecured loans
Please consider applying only after understanding and agreeing with the disadvantages.
① High interest rates: Unsecured loans generally have higher interest rates than secured loans. The biggest reason is that there is no collateral to serve as a guarantee in case of an emergency.
Unsecured loans are not suitable for borrowing large amounts, so if you want to borrow money to purchase a house or car, consider other borrowing methods such as a "purpose-specific loan" or if you want to borrow tuition fees, consider a "scholarship."
However, even for the same unsecured loan, interest rates vary depending on the service, so if you want to reduce your repayment burden as much as possible, choose a loan with as low an interest rate as possible.
② Credit information becomes important
If you have problems with your credit information, it will be difficult to use an unsecured loan. This is because unsecured loans are screened based on the credit of the user.
Credit information records whether you have any financial troubles. If you have "accident information" recorded due to excessive late payments or debt restructuring, you will not pass the screening.
First, make a disclosure request to a "credit information agency" such as CIC or JICC, and if there are problems with your credit information, consider other borrowing methods. With an unsecured loan, you can borrow without collateral. Since no collateral is required, the procedure is easy, the lending speed is fast, and you can borrow easily.
However, since the interest rate is high, make a repayment plan before applying. With consumer finance, you can easily find out the screening results with a "simple diagnosis," so it's a good idea to try it out first to see if you will pass the screening.
