Unsecured Personal Loans
Facts that you must know about unsecured personal loans
An unsecured personal loan is a type of personal loan that doesn’t require the borrower furnish any asset as collateral. People with high credit scores are only eligible for unsecured personal loans. Unless you have a very good credit score, it may be difficult for you getting an unsecured personal loan. However, if you can manage to get one, you can spend the money for any purpose at your own discretion. You can use it for paying off outstanding debts, refurbishing your home, buying a car, starting a business, continuing college education or anything else.
Unsecured personal loans – Aspects
Most unsecured personal loans come with fixed interest rates and thus the monthly payments towards the loan remain the same throughout the term of the loan. An unsecured personal loan usually charges no pre-payment penalty. Therefore, you can reduce the loan-balance by making additional payments every month.
Unsecured personal loans – Types
Most banks, credit unions and other financial institutions offer such personal loans. A cash advance loan can also be considered as an unsecured personal loan. Standard unsecured personal loan and cash advance loan are two common types of unsecured personal loans that the borrowers can take out to fulfill their individual financial obligations. However, an unsecured cash advance loan is an easy-to-get personal loan that doesn’t require the borrower to have good credit rating or good credit score. Moreover, it doesn’t require any co-signer. An unsecured personal loan is a short-term loan that comes with a number of additional fees.
Unsecured personal loans – Advantages
The most remarkable advantage of an unsecured personal loan is that it charges lower interest rates than credit cards. For this reason, you can borrow an unsecured personal loan and pay off your existing high interest debts or consolidate debts; instead of owing a credit card debt. Unsecured personal loans offer fixed term; so you can anticipate the pay off date and do the needful accordingly.
Unsecured personal loans – Fallacies
Not every bank, credit union or financial institution offers such loans, even to the borrowers with good credit score and credit history. Apart from credit history and credit score, the lenders consider some other factors like debt-to-income ratio, at the time of approving an unsecured personal loan. Since such loans don’t require the borrower use any asset as collateral, the lenders also consider potential risk factors associated with every borrower.
Unsecured personal loans – Cautions
An unsecured personal loan charges lower interest rates than credit cards, but still the rates are much higher if compared to secured personal loans that require a borrower to furnish collateral. Since an unsecured personal loan charges higher interest rates, the monthly payments towards such a loan is higher than a secured one. The lenders also charge additional fees as there is no collateral associated with an unsecured personal loan. However, the good thing is that the lender can’t seize or garnish the borrower’s personal property, even if he defaults on payments.
Steps to get an unsecured personal loan
Most lenders including credit unions, banks and other financial institutions require the borrowers to have good credit score; at least more than 620, in order to lend money in the form of unsecured personal loans. However, considering the inflation and tough economic situation, nowadays the lenders provide such loans to the borrowers with low credit score too. If your credit score is not below 580, then you would be entitled to get an unsecured personal loan. The lender may approve your loan application after considering your credit score, debt payment history and debt-to-income ratio. Here are the steps to getting an unsecured personal loan.
Get your credit report – First of all, you need to get free copy of your credit report from any of three leading credit reporting agencies. Review the report carefully and find out discrepancies, if any. Dispute the discrepancy as soon as possible with the respective reporting agency and also with your creditors. Get the report corrected as it would help you improve your credit score and thus qualify for getting an unsecured personal loan.
Be updated on your bills – Be updated on every bill that you’re behind on. Unless you clear the dues, you may not be eligible for an unsecured personal loan. You must be current on your bills for at least 6 consecutive months before you apply for a personal loan. If you can’t manage to pay your bills in time, cut your expenses or try to improve your income. Make a strict personal budget and go accordingly.
Identify the purpose of the loan – Identify the purpose of seeking the loan; it may help you find a better option than unsecured personal loans to fulfill your need. For example, if it’s for college admission or continuing studies, you may apply for low interest student loan funded by federal government. However, if you fail to meet eligibility criteria to get any federal loan, you can opt for an unsecured personal loan.
Shop around – Visit your regular bank or credit union, if your credit score is 580 or higher for getting an unsecured personal loan with bad credit. You can also use Internet to find online bad credit lenders. Compare their terms and conditions, and choose a lender that offers the most completive interest rate and maximum flexibilities. Before taking out a loan, make sure you understand every term and condition furnished by the lender. Also, make sure you can afford to make monthly payments regularly and in time. You can ask your friend or relative with good credit to be your co-signer. Having a co-signer with good credit history would increase your chance of getting an unsecured personal loan.
Taking out a loan can’t be a permanent solution to your financial problems. Unless you can improve your income and cut spending, you can hardly manage your personal finance efficiently. Unsecured personal loans are good as long as you can pay it off within stipulated time.
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