Unsecured Credit – Not Necessarily a Good Idea
It may seem appealing to have access to unsecured credit. You do not have to provide any collateral and even if you default in payment there is no property of yours that can be auctioned. There are however several major drawbacks that you should be on the lookout for. If you are not careful, these drawbacks could negatively affect your long term finances. So before you dive into unsecured credit read through the following potential pitfalls.
Unsecured Credit ~ not necessarily a good idea
- You are spending money that you do not have. It may feel good to buy whatever you want without worrying whether your bank account is huge enough but remember that you will have to repay all that money soon.
- High interest rates. Due to the risk lenders are exposing themselves to with unsecured credit, they set high interest rates. This means that you have to repay a lot of money and if you are not careful, you could be sinking deeper and deeper into debt.
- Negative impact on credit. Even if you miss payment for a few days, your credit score suffers a lot. You can imagine what will happen if you default by months. A bad credit score will greatly reduce your future borrowing power.
- Additional fees. Late payments attract fees and some unsecured credit companies also charge regular fees especially if you have been issued with a credit card.
It is important to remember that no matter how appealing the unsecured credit sounds, unsecured credit ~is not necessarily a good idea.