An unsecured loan is a special form of financing for the purchase of a property that does not include a mortgage, but the simple signature of the applicant. The mortgage loan, on the other hand, requires that the borrower, the borrower, agree to place a mortgage on the house he is buying, as a form of guarantee in favor of the bank: it is therefore a mortgage guarantee. This is one of the most common forms of mortgage, but it is not always available or preferable. For this reason, unsecured loans may appear more advantageous.
An unsecured loan is issued in exchange for the provision of a personal guarantee by the applicant
Which is sanctioned by the signature on a written document. Through this signature, the borrower provides a personal guarantee about the repayment of the loan. What does it mean? In the event of the debtor’s insolvency, the bank will be repaid not on the property, but on the assets of the borrower. Usually, this procedure is performed through the sale of these assets in special judicial auctions, aimed precisely at resolving these economic causes between insolvent borrowers and credit institutions. If instead the borrower is a bankrupt company, the necessary step will be to liquidate.
Given these characteristics, unsecured loans constitute a particularly flexible category of financing for the purchase or renovation of buildings. Considering that the applicant does not provide very important guarantees to the bank, the amount that can be obtained on an unsecured loan is limited and is around a few tens of thousands of euros (for example, 30,000 euros). Moreover, the duration of the loan cannot be very long and usually reaches up to 5 – 6 years: an aspect to consider in view of the calculation of the monthly installments (the longer the duration of the loan, the more the installments will be read on which to spread the repayment of capital). On the other hand, unsecured loans are available at both fixed and flexible rates.
The short duration and the amount obtainable do not make the unsecured loan particularly suitable for the purchase of a property
Usually, therefore, this form of loan is used to finance renovation or extraordinary maintenance of the buildings. Another quite common use is that aimed at supporting the costs for the maintenance of the common parts of condominiums : in the latter circumstance, the mortgage would not be possible, therefore unsecured loans are the only viable solution.