If you are thinking of taking out an unsecured loan, you probably have heard that the single most irresistible aspect of this type of loan is the idea of no risk to the borrower. Apparently, this misconception has been around for quite a long time that it has been taken as gospel truth by individuals who are by all means clueless of the reality on the ground. No doubt, unsecured loans are advertised and popularised on the premise that there is no risk to the borrower. To some extent, that might be the case but to unilaterally believe this misconception is to lie to ourselves.
Before we get to analysing whether the “no risk to the borrower” is a truth or myth, it is imperative that we look at the reasons as to why many people blindly believe this myth. One reason why many people believe this myth is because of insufficient understanding of credit laws. Secondly, there is also skewed belief that so long as an asset is not attached to a loan, the same cannot be sold off or attached to recoup the loan. Last but not least, the concept of collateral and the belief that since none is attached to the loan, the risk is zero. That notwithstanding, there is also the general belief that lenders have few legal methods when it comes to unsecured loans and therefore borrowers feel (incorrectly so), that they can default on unsecured loans and go scot free. That of course is wishful thinking as there are indeed a number of legal methods that lenders can use to persuade a defaulter pay up or recoup their money. These are:-
- Garnishment of wages
- Court order to sale property of borrower to recoup money lent
In regard to the above, we can comfortably state that there is no such thing as no risk to the borrower. In any case, defaulting on unsecured loans have a number of risks to the borrower. The most obvious is of course the fact that your credit score will suffer a beating. Defaults mean that your credit score will worsen and as a result dent your chances of getting access to credit in the future.
Default also means that you will have to contend with higher premiums in the future, find it difficult getting an apartment, securing employment and also the amount you pay as down payment will also be on the higher side. Last but not least, the blot of default will remain in your credit report for a period not exceeding 7 years and there is no denying that this is something you do not wish to see happening.
That said, what is the truth about unsecured loans?
It is correct to say that the idea of no risk to the borrower is nothing more than a misconception, a myth of sorts. The truth of the matter is that there is some form of risk to the borrower. Legal action might actually take longer where unsecured loans are concerned but the truth of the matter is that the option is available. Do not therefore take out an unsecured loan under the guise that should you default, you will go scot free.