An unsecured loan is a loan in which no collateral is used. Many times unsecured loans are offered to consumers who are credit worthy, meaning they have a credit history that is good. Many times these are also called signature loans or personal loans. Sometimes one of these loans may also be used for business purposes. Often these loans are used to make purchases for smaller ticket items such as a new computer, perhaps a vacation, a new car, or an unexpected expense such as a medical bill. These loans can also used as a way to consolidate debt. The borrower will promise to pay the lender back within a certain time frame. Often interest rates are much higher with an unsecured loan due to the fact that no collateral, such as a home, was put up. The lender will assess how much of a risk the consumer is to them and if a high risk is determined, a higher interest rate will be charged. Lenders do this by looking at the debt to credit ratio. A consumer with a lower debt to credit ration will favor better than one with a high debt to credit ratio. An important thing to note is many times the borrower will incur penalties if the balance of the loan is paid off sooner than expected. When applying for a loan that is not secure, it is best to ask if this is the case.
When applying for an unsecured loan, the borrower should know that the amount of money that is loaned will be based off the consumer’s personal credit rating as well as their current financial status. There are many advantages to getting an unsecured loan, which include:
There will be no collateral used. The borrower does not need to have to worry about putting their home or anything else up to be used for lost payments if payments are not made. Even if you do not own a home, a car or anything else, you may be entitled to have an unsecured loan.They are usually available to those with bad credit. They have short repayment terms, usually one to five years.
Money is usually available right away. Many times a decision to give an unsecured loan is given within minutes, to a few days. Upon receiving approval for the loan, the money is available. No waiting around for days or weeks to see if one was approved for a loan.
There are no credit checks. Credit checks can lower your credit rating. The only way an unsecured loan would effect your rating was if payments were late or not paid. Just as there are benefits to unsecured loans, there are also disadvantages as well. These include:
Guidelines for unsecured loans are often much stricter due to the fact that there is no credit check and no collateral is used.Interest rates are usually guaranteed to be much higher than a secured loan.These loans can be also given to individuals with bad credit. More than likely, these loans will be for a smaller sum of money. Often times these loans can be obtained from a payday loan company. These loans are given on the same day that applied for, but will carry a much higher interest rate than a traditional secured loan since the money is expected to be paid in a much quicker time frame. These payday loan companies have very strict and low borrowing limits. It is highly recommended that these places of business are only used as a last resort.
A great place to look for unsecured loans is online. There are many companies that advertise decent rates and it is easily accessible to compare which rates are right for the consumer. Interest rates, as well as APRs and the terms can be looked over to access if a loan is a good choice for the individual.
Unsecured loans are a great option for those that need money now. There are many ways to obtain these loans as they are readily available for those that need money on the spot. If you do decide to go with a loan that is not secured, make sure that you can repay back the money on the payment terms. It is best to only take the amount of money that you will need instead of taking extra money. Unsecured loans can help many people get ahead in life, and are a wonderful way to finance something that an individual really deserves to have.
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