Unsecured Personal Loans
Unsecured personal loans are a type of loans where borrowers can borrow funds without putting up some collateral. It is issued on the basis of the creditworthiness of a borrower. As there is no car or home that can be repossessed if case of loan repayment default by the borrower, unsecured personal loans are regarded to be riskier for banks and other lenders. Additional risk means that good credit is required and that banks have to levy a higher rate of interest.
Unsecured personal loans require more paperwork than payday loans but less than secured loans like auto loans or mortgages. The tenure for personal loans is usually short, ranging from 2 to 5 years, and the total funds given out as loan are also often smaller. Borrowers can use unsecured personal loan funds for a variety of purposes, including payment of tuition for college, debt consolidation, buying a car, vacation, medical expenses, wedding, funeral, and even home repair/renovation.
People with bad credit may find it very difficult to get approved for an unsecured personal loan. Even if they get approved, the interest rate will be extremely high. People with bad credit can get a lower rate if a family member or friend with good credit becomes a co-signee on the loan.
Shopping for unsecured personal loans
Unsecured personal loans should be considered as an option by people who are in immediate need of money. The best part about such loans is the fact that no collateral is required and that the burrower’s promise to repay the loan is the only guarantee. Unsecured loans may often be the only choice of quick funds for individuals who do not own a car or a home, or have very little equity on their house.
Unsecured personal loans are offered by credit unions, banks, P2P lenders, and finance companies, etc. The rate of interest on such loans tends to vary widely and hence borrowers should check out the offers of different lenders before making their choice of lender. It is important for borrowers to compare the fees, interest rate, APR, and other associated charges as well as other factors like term of the loan, automatic rollovers, and prepayment penalties, etc., when shopping around for unsecured loans.
As unsecured personal loans do not have any collateral with the only guarantee being a borrower’s promise to pay back the loan, the credit scores and credit history of a borrower play a vital role in the loan application process. If you want to take out such loans, then you need to fill out the application, sanction a credit check, and offer documents of sufficient income and capacity to repay the loan. Such documents generally are W-2 forms and pay stubs for 3 to 4 months, or the tax returns for individuals who are self-employed. After the application is processed and underwritten, burrowers will be intimated in writing by the lenders about whether the loan application was denied or approved.
In several instances, applicants can fill out the form on the website of the banks/lenders, get approved, and get the funds directly transferred to their bank accounts without having to leave their houses.