Unsecured loans are definitely gaining in popularity, as they are increasingly being used as a method of paying off outstanding debts under one umbrella payment. They are much easier to obtain than secured loans which need some kind of collateral offered, but the downside of this is that unsecured loans tend to cost more in repayments than secured loans.
However not everyone is able or willing to obtain secured loans, due to either not having an appreciable asset to offer as collateral, or because they don’t want the uncertainty of having an asset held as collateral. There is less to lose with an unsecured loan as your home is not at risk.
Unsecured loans come in various types, such as quick pay day loans which are used as an emergency fund between pay days; student loans; and general repayment loans to finance such things as debt consolidation, home improvements and vacations.
An unsecured loan such as a pay day loan can have a number of disadvantages, as unless one shops round well for a special deal then the fees can be much higher than other means of borrowing. They can serve a legitimate purpose, but if not handled correctly can lead to a spiral of debt. They are particularly convenient though for those with bad credit who cannot obtain a loan elsewhere.
Unsecured student loans have the disadvantage of being almost impossible to obtain in a private capacity without a co-signer. As a student typically has no credit history or assets, an unsecured student loan will be expensive to service. Expecting third party endorsement can be difficult as it puts a great strain, as well as responsibility, on the third party. Loan endorsements can often lead to break downs in relationships.
Using unsecured loans can be an expensive way of obtaining funds as they typically cost much more in repayments than secured loans. One of the disadvantages can be that they offer no early settlement offer unless a redemption penalty is paid, meaning if you took a loan to finance a vacation you could still be paying the monthly instalments once the vacation is a distant memory. If interest rates have fallen in the meantime you can be caught repaying a loan at a higher rate than current rates, which is always a hard pill to swallow.
Overall the advantages of unsecured loans, such as no collateral to risk, ease of obtaining them, and good rates likely if your credit score is good, balance out the disadvantages. Like most things connected to finance the advantages of using unsecured loans will be more appreciable if your credit score is high to begin with. Many people do use unsecured loans though as they do not have a good credit score, so other avenues of borrowing are closed to them.