Potential Risks of Unsecured Personal Loans You Might Not Know About

Life can be really tough, and sometimes you may find yourself a little short on cash but need to buy an expensive item or need money for an emergency. This is the time to borrow money, but you will have to decide which kind of loan to get. The most straightforward type of loan is a personal loan, also known as an unsecured loan.

Unsecured personal loans are similar to credit cards in that they are open-ended and can be used for any purpose, whether it’s paying off high-interest credit card accounts, adopting a child, or buying expensive items.

Before you sign the contract, however, you should consider certain risks that may accompany the loan. Here are some of the most common risks you need to be aware of:

High-Interest Rates

The biggest disadvantage of unsecured loans is the interest rates. Usually designed to be lower than credit cards, the interest rate on personal loans may still be high compared to other loans, such as mortgages and most auto loans.

For example, loans may start at around 10% and top out at about 20% interest. Compare that to credit cards and their 25% interest. But unlike credit cards, the loans are open-ended, and you can always pay off your debt with a combination of your own money and more borrowed money.

Long Payoff Periods

An extended loan term can be an advantage because it allows you to spread out a large windfall over a long period. But it can also be a disadvantage if it means you won’t have access to the money you need for a few years.

For example, if you need to pay off a big purchase or have a large expense in the near future, an unsecured loan can be a big help, but if you need your money back quickly, such as in fewer than five years, you’ll likely pay a high-interest rate.

The good news is you can extend the loan’s term, which reduces your monthly payments, but it can add hundreds, if not thousands, of dollars to your interest payments.

Bad Credit Loans

Typically, it would help if you had good credit to get an unsecured loan. In fact, most lenders will not even consider you for a loan if you don’t have a good credit history.

However, there are lenders out there that will consider you for an unsecured loan with less than perfect credit, but they will charge you a higher interest rate and may have more stringent loan requirements.

Privacy Concerns

A personal loan represents a legal obligation, which can sometimes mean a lender can share your personal information with collection agencies if you don’t make your payments on time.

The laws around this issue vary from state to state, so you should find out the laws in your home state. This way, you can avoid unpleasant surprises down the road.


Even though there are risks associated with unsecured personal loans, they can be a great way to get the money you need. However, it is important to make an informed decision. You must be aware of the potential risks so you’ll be prepared to handle them, should they happen.

If you’re not sure which loan is right for you, talk to our loan experts at Mid-Town Finance Company in Nashville, and we’ll be happy to help you decide. We tailor ,personal loans to ensure that they meet your specific needs. Contact us today to find out more!