Unsecured loans are not a new phenomenon in the lending world, but are finally falling into favor as a good option for borrowers. As the economy has grown worse over the last couple of years, nowhere has the fallout been more evident than in the world of lending. If you were to travel backwards in time to three years ago, you would see an environment ripe with options, with new, creative ways to lend money popping up almost daily. However, those days are long gone.

Because of the fact that that unsecured personal loans have no collateral to back them up, it is much harder for a lender to recoup their money should the borrower stop making payments, as there is nothing for the lender to go after. As a result of this fact, most unsecured loans had approval guidelines that were much stricter than other lending options. The loans were either offered to tier one borrowers only, with credit scores above 750, or the interest rates were astronomically high. In this golden age of lending, rarely was an unsecured loan the right choice for a borrower.

However, in today’s lending market, lots of viable options are simply no longer there. Credit card guidelines have hurt the credit card industry, resulting in higher interest rates and lower credit limits. Due to the housing crisis, home equity lines are next to impossible to obtain. The banks offering partially secured loans were, for the most part, the same banks offering sub-prime mortgage loans, and are now all gone. So what is left?

You still have the option of pulling cash from the equity in your home. However, unlike the olden days, this is rarely able to be accomplished through a home equity loan. Now, in order to pull cash out, nine times out of ten, you will need to refinance fully your current mortgage. In some instances, this may make sense, but if you have a short term need for the money, it makes no sense to attach this to your home and pay on it for the next thirty years.

If you need money, and your repayment goals are under five years, the only options you have left are unsecured loans. When your alternatives are to either eat up the dwindling equity in your home, pull from a 20% interest rate credit card, or not get the money at all, all of the sudden a 12% unsecured loan doesn’t seem so bad.

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