Unsecured loan

From Wikipedia, the free encyclopedia

Unsecured loans are loans that are not guaranteed with any asset, so that the risk of repossession does not exist. Though the lender can still take legal action in order to recover the money, such a legal process would be significantly longer and more expensive than with secured loans.

Typical unsecured loans are credit card debt, bank overdrafts, and personal loans.

1 Credit card debt
2 Bank overdrafts
3 Personal checks
4 Impact
5 See also
6 References

[edit] Credit card debt

In 2002, the average American households with only one credit card had $9,000 in debt. ^[1] Credit cards are to be repaid within a month and when they are not are considered debt and the consumer is charged interest by the credit card companies.

[edit] Bank overdrafts

When a customer withdraws more money than is in their bank account, the money owed to the bank is called a bank overdraft.

[edit] Personal checks

Many financial institutions offer personal unsecured loans to individuals needing quick cash for major purchases, emergency health bills, etc. ^[2]

[edit] Impact

Since there is no asset securing the loan, the risk involved for the lender is higher and so, the interest rate charged for the loan will also be significantly higher. As regards to loan amounts, unsecured loans tend to be smaller.

Excessive loan amounts that are unsecured will adversely impact an individual's credit score and cause the individual to get higher interest rates on secured loans as well. ^[3]

You cannot deduct the interest from any unsecured loans.^[4]