The fundamentals of different types of unsecured loans
America has just recovered from the worst and the steepest recession on paper and technical charts. In reality, the negative impacts of the recession are still there. The country is not yet economically stable and as a result millions of Americans are suffering from financial crisis to cope with which they often require to take out loans. However, the economic condition of the country has made it quite difficult to get a loan. The situation is worse for the people, who don’t have any asset to use as collateral. Nowadays, most financial institutions require the borrowers to put up collateral that they can seize and sell to free up their money, if the borrowers fail to repay the loan. Nevertheless, the good thing is that there are some viable options for getting unsecured loans or loans that don’t require putting up any collateral.
Definition of unsecured loans
An unsecured loan may be defined as a loan which can be obtained without using any asset as collateral. In other words, an unsecured loan is a loan that is secured by a borrower’s creditworthiness or credibility, not by any collateral. People with excellent credit generally qualify for such loans.
Types of unsecured loans
Different types of unsecured loans are available in the loan market. Borrowers can choose any from them as per their financial requirements. Here is some useful information on different types of unsecured loans.
Personal unsecured loan – Until 60s, this was the only type of unsecured loan that came with rigid loan terms and pre-set interest rates. This type of unsecured loan is not flexible at all. However, this kind of loan allows the borrowers to pay the same interest rates throughout the term of the loan. Even if the market rates go up, the interest rates for personal unsecured loan remain unchanged until the term ends. In most cases, early repayment options are available with such loans.
Unsecured line of credit – Comparing to personal unsecured loan, this is a more flexible option. This type of loan is a better example of unsecured loan in present financial scenario of the country. Unsecured line of credit can be also defined as an extended credit offered by banks and other financial institutions without any collateral. Such unsecured loans generally come with floating interest rates. Sometimes the lender may ask the debtor to convert it into a personal loan unless the line of credit is used judiciously.
Bad credit loan – This is the most common type of unsecured loan usually taken out by the borrowers with poor credit rating. This type of loan is generally offered by private lending institutions rather than conventional lenders like banks. Owing to the risk of lending money to people with less creditworthiness, lenders generally charge higher interest rates as well as other fees for disbursing such loans. Bad credit loans are small loans that can help a borrower improve his credit rating, if paid back according to the pre-set repayment schedule.
Payday loans – Anybody with a stable employment can obtain a payday loan without putting up any collateral. These are also called as cash advance loans. Although payday lenders don’t require a borrower’s asset to assign as collateral, yet they keep a post-dated check signed by the borrower as a security for the loan. If the borrower fails to repay the loan on the due date, the lender is very likely to cash in the check to free up his money.
How to lower the interest rates
Due to the perils involved in lending money to high-risk borrowers, unsecured loans are usually charged with higher interest rates than secured loans like home loans or auto loans. Nevertheless, there are some useful ways through which you can save on interest rates significantly.
Check your FICO score – You must check your credit score. If it is low, you must try to improve it, as people with higher credit score have greater chance of getting unsecured loans than people with poor credit score. Moreover, lenders of unsecured loans offer better interest rates to good credit holders.
Try with your regular bank – Conventional lenders like banks always charge lower interest rates than the private lenders. So while looking for an unsecured loan, you must try with your regular bank as they usually offer better interest rates to their existing customers. Although they generally turn down borrowers with low credit profile, yet in case of existing customers they consider their banking profile as a qualifying factor rather than their credit.
Contact the credit card company – You can contact your credit card company as they generally offer better rates to existing customers.
Choose another credit company – If your credit card company denies providing you better rate, you can select another credit company that offers better rates throughout the loan term. Transfer your credit balance to the new company that offers low and fixed interest rates. However, you must maintain the transferred amount as balance on your credit card.
The most exciting thing about unsecured loans is that such loans don’t require the borrowers to face the risk of losing their property even if they fail to repay the loan in time. However, the borrowers must repay the loans timely to avoid unwanted harassments and legal issues.
You can depend on us for no-credit check unsecured loans. We guarantee lower interest rates and more flexible loan terms.