An unsecured personal loan is one of the most common forms of finance available to individuals today. If you’re looking to get finance to pay off credit card debt, or finance an extension on your home, an unsecured loan might be the answer for you. But unsecured loans aren’t for everybody. It’s important that you understand this form of finance and the associated risks before you make any crucial decisions. You don’t want to end up making the wrong choice – it could cost you in the long run.
Unsecured personal loans are simply personal loans that aren’t secured against anything. This means that you won’t have to offer up collateral to get this form of loan. This is perfect for someone who may not have large enough assets to secure a loan. This loan is considered a lot more risk free than a traditional loan, as it doesn’t leave your personal property at risk. If you’ve considered getting an unsecured personal loan in the past, but you’re not sure exactly what they are, this site is the perfect place for you to start your journey.
We’ve created a guide on unsecured personal loans that will help you better understand the benefits and drawbacks of this type of finance. Make sure to read the entire guide – it will answer any current questions that you might have.
Personal Loans: The Basics
A personal loan is simply a small loan that is given to private consumers by lenders. It does not have any specific use required. You pay back the loan over a fixed term period, which means that you typically pay off the loan within three to five years. Interest rates are often fixed but can also be variable. People use these loans to refinance debt, purchase cars, repair homes, and much, much more.
Secured Vs. Unsecured
Most people that are trying to determine if this is the right type of finance for them are comparing unsecured personal loans versus secured ones. The differences are simple but significant. Secured personal loans are secured against the value of an asset. Most people use their car or home to secure a personal loan. This means that if you can’t meet your financial commitments to the bank, they can seize your personal property to help pay themselves back.
While this may sound terrible, it has its benefits. It means that banks are much more likely to approve your loan. It also means that banks are likely to offer you lower interest rates. If you’re someone who is worried about your ability to pay back the loan, you’re more likely to want to opt for an unsecured loan. You don’t want to risk the safety of your family when you end up making a lending decision. But those who want to save money over time are better to look at secured loans because they don’t have to worry about having to pay higher interest rates and fees.
Unsecured Personal Loan Bad Credit
If you don’t have a good credit score, you will find it hard to get an unsecured personal loan. This is because banks are less likely to want to lend something to someone with a sub-par score if they have no collateral to liquidate to get their money back. It may be annoying, but you’ll have to do a bit more work to try and get accepted for this type of loan.
Fortunately, there are plenty of new lenders in the industry that are making it easier for people with bad credit to get personal loans for items they need to purchase. Either way, you need to make sure that you get your credit score in the best shape possible before you apply for anything. You don’t want to end up getting rejected for a loan, it will damage your credit score even further and make it less likely that you’re approved again in the future. Follow the few tips provided below to improve your credit before you apply for an unsecured personal loan.
Pay Off Your Credit Cards
A big secret that people often don’t realize is that paying down your credit card debt is the quickest way to improve your credit score. If you carry large balances on your credit cards, it doesn’t look good on your credit report. Credit reporting agencies calculate your report by using your credit usage and limit as a ratio. If you can reduce the amount of credit you are currently using, you can quickly improve your credit score. It will only take a month at the most for your score to be updated, so you won’t have to wait too long.
Get Incorrect Items Removed
Check your credit report to make sure that there aren’t any incorrect items. If there are, you can apply to have them removed by the credit reporting bodies that monitor credit scores. Sometimes, these bodies will not remove items that you feel need removing. In this case, you should contact a credit repair company to ask them if they can help. They may also be able to help you remove other items on your report that might not necessarily be incorrect. They’re very good at getting inquiries taken off your credit report.
After you’ve taken these steps, you should make sure that you shop around for a lender. Because you have bad credit history, unsecured personal loans are a bit harder to get. You need to find lenders that are willing to take a chance on individuals with poor credit histories. This requires a bit of extra research. There are plenty of online forums where people discuss the types of financing they are able to receive for certain credit score levels, this is often a good starting point if you’re trying to get some perspective on your options.
Ask for Full Cost of Loan
When you decide to start comparing unsecured personal loans, it’s important that you ask for the full costs of the loan from your lender. One of the unique advantages of having an unsecured personal loan is that it is a term loan. This means that it is easy to view the amount of money you will be liable for paying over the course of your loan. Unlike a credit card, which is flexible, personal loans are rigid and easy to predict.
When you’re comparing these types of loans, you can simply ask the lender for a full breakdown of the loan. This should include a total cost that will represent the full price of what you owe. It’s the best way to compare prices. It doesn’t let false advertising get in the way of what the true value of the loan is. You don’t want to be tricked by a low interest rate that also has hidden fees.
Advantages of Unsecured Personal Loans
After reading the majority of the information on this page, you might have a better idea of whether or not an unsecured personal loan is right for you. But it can be hard to take in a lot of information all at once. That’s why we’ve created this concise list of pros and cons to help you get a better and clearer understanding of if personal loans are right for you and your situation. Check out the advantages below.
- Less Risk – You’re not risking your family assets by having an unsecured personal loan, you won’t have to secure the loan using any valuable assets that will impact your family’s financial security. This is a huge plus if you end up defaulting on the loan.
- Term Loan – Unsecured personal loans are term loans, meaning they are paid back at a fixed interest rate over a set amount of time. This is advantageous because it helps you keep good payment habits. They’re much easier to pay off than credit cards. You can also see the total cost of the loan before you make any agreement.
- Lower Interest Than Revolving Credit – Unsecured personal loans tend to have lower interest rates than credit cards or lines of credit. This is because they are not forms of revolving credit. If you know how much money you need to borrow, unsecured personal loans are a great option.
- Unrestricted Money – Unlike with some loans – such as a mortgage – unsecured personal loans have no restrictions on how you use the money that you borrow. This means that you can use the money for whatever you see fit. This is a huge relief if you don’t have to have to spend hours justifying your loan purpose to your bank.
- Wide Range of Lenders – There are a variety of both traditional and online lenders that offer people unsecured personal loans. If you’re planning on applying for an unsecured personal loan, you’ll literally have hundreds of lenders to choose from.
Disadvantages of Unsecured Personal Loans
As you can see above, there are plenty of benefits to having an unsecured personal loan. But there are also some drawbacks that you should consider prior to applying for one. Read below to see what you need to consider!
- Higher Interest Than Secured Personal Loans – The reality is that these types of loans are much riskier for banks as they have no way of getting their money back if you decide not to pay. If you want to have an extremely low interest rate, you’re better off going with a secured personal loan provider.
- Harder to Get – Unsecured personal loans are also harder to get than secured personal loans. This is because of the risks involved for lenders. If you have a bad credit history, it will be easier for you to get a secured personal loan.
- Not Flexible – As with any personal loan, unsecured personal loans are not flexible. You will have to pay back set amounts of money over set amounts of time. You will also have to apply for a new loan if you want to increase the amount of capital that you have borrowed.
It’s Easiest to Apply Online
The personal loans industry has expanded rapidly online. You’ll find that there are hundreds of lenders in the market that are competing for borrowers. Instead of having to drive to a branch and meet face-to-face with a bank, you can now find really great interest rates online. In fact, many online lenders can offer lower interest rates than brick-and-mortar banks because they don’t have as many overhead charges. In addition, it creates a much better lending experience for those borrowing money. You can get an instant decision by simply inputting a few personal details.
Online lenders are also typically able to get you money within 24 hours of a lending decision. They electronically transfer you funds to make the entire experience as hassle-free as possible. It’s also much safer to give your sensitive information over the internet. Many top lenders have extremely high-end encryption technology to protect your data. If you go into a bank branch and hand over your personal information, anyone could end up getting access to it. The benefits of applying online are endless, hence why we recommend our readers use online lenders as a first port of call.
Unsecured personal loans are a great lending product for people who don’t want to risk their assets when they borrow money. If you fall on hard times, you won’t have to worry about having your home or other assets reclaimed. You should still remember that it will damage your credit score if you miss payments or default. Make sure to use a reputable lender that has a presence in the industry.
We help partner our readers with some of the top performing lenders in the industry. We provide non-biased suggestions to help people get the most out of their lending decisions. Check out our homepage. Remember, unsecured personal loans are more expensive, but they also carry less risk. If you can afford the premium interest rates, they’re a good option if you want to protect your family’s assets!
In this section, you will learn about some basic information about unsecured personal loans. If you are thinking of getting one, you can check out the list of commonly asked questions and find the answers you need.
What is an unsecured personal loan?
An unsecured personal loan is any type of loan that does not require collateral (such as home or car). Unlike secured personal loans, your bank or lender cannot seize possession of the home or car if you are unable to make payments.
Is a credit card a secured or unsecured loan?
Credit card debt is a type of unsecured loan. In fact, it is the most widely-held unsecured debt in the market.
What is a secured personal loan vs unsecured?
A secured personal loan is one that is tied to a car or home. This collateral will serve as protection for the lender in the event that the borrower is unable to make payments. An unsecured loan is one that does not require collateral. Borrowers with good credit score are the ones who qualify for this type of loan.
Are unsecured loans a good idea?
Since the loan is not tied to your assets, you won’t have to worry about losing them if you default on your payments. Most unsecured personal loans also do not require a down payment.
What is an unsecured signature loan?
A signature loan is an unsecured loan. It is also known as “good faith loan” because banks and lenders only use the borrower’s signature as promise to pay. There is no need for collateral.
Why is the interest rate higher on an unsecured loan?
Since banks or lenders do not require collateral, an unsecured loan will have higher interest rate to compensate for the risks on the lender’s part.
What is an open end unsecured loan?
An open end unsecured loan is a type of pre-approved loan that agreement between the borrower and loan provider. This provides the borrower with a certain amount limit that was previously agreed on.
Can I get an unsecured personal loan?
An unsecured personal loan is provided to borrowers with a good credit score. You do not need to provide collateral for the loan because of your good credit history.
Are personal loans secured or unsecured?
Personal loans can be secured (with collateral) or unsecured (without collateral). The type of loan you are approved for will be determined by your credit score, among other factors.
How do unsecured personal loans work?
In an unsecured loan, no collateral has been pledged as support for the loan. This means that your lender is unable to seize any of your personal assets when you fail to make your monthly payments. To mitigate the risk, unsecured personal loans might be charged with a higher interest rate.
Is unsecured loan a long term debt?
Unsecured loans can either be short- or long-term. It will vary on your qualifications (such as credit rating and history) if you qualify for certain loan terms.
What is the interest rate on an unsecured personal loan?
The average interest rate on unsecured personal loans range from 5% to 36%! You can expect that the lower your credit score is, the higher your interest will be.
How do interest rates compare for secured versus unsecured loans?
Since secured loans are backed by collateral, the interest rate on these types of loans are lower. In comparison, the interest rate for secured loans is about 8% lower than unsecured loans.
Are unsecured personal loans good?
Unsecured personal loans are good for people with good credit standing and do not want to risk losing an asset.
Is it easier to get a secured or unsecured loan?
Both types of loans are difficult to qualify for. For unsecured loans, you need to have good credit standing in order to get a loan without providing collateral. For secured loans, you need to back it up with collateral (such as your home or car), which you run the risk of losing if you are unable to make monthly payments.
Are unsecured loans safe?
You need to be very careful when you take out unsecured loans. They come with a high interest rate that can cause your credit score to dip further if you don’t make on-time payments, or any payments at all.
How to get an unsecured personal loan?
Before applying for unsecured personal loan, you must check your credit score first. This will determine if you can qualify for that loan or the amount of loan that you can get (if approved). It might be a good idea to pay down some of your existing debts first so you can negotiate more favorable terms and interest rates.
How to apply for an unsecured personal loan?
When looking for unsecured personal loan, search for lenders that can provide them. Once you have a list, you can check their list of requirements to determine if you qualify. The next step is to choose whether you want fixed or variable interest rate, along with your terms. Make sure you compare as many lenders as possible to get the best possible rate.
How much can you borrow on an unsecured loan?
Depending on your credit score, you can borrow anywhere from $1,000 to $50,000 via unsecured loans.
Is it better to get secured or unsecured loan?
Both types of loans have their own set of benefits and drawbacks. With a secured loan, you have to make on-time payments if you do not want your valuable assets seized by the lender. On the flipside, unsecured loans could put you in more financial trouble because of the steep interest rates. You have to weigh your options according to what is most beneficial for your finances in the short- and long-term.
Is a personal loan unsecured debt?
A personal loan is generally considered unsecured debt. You won’t need to provide collateral for you to get the cash you need, as long as you qualify with your credit score.
What is an unsecured line of credit loan?
An unsecured personal line of credit is when you borrow a specific amount of money you need. You can get a variable interest rate that is lower than the fixed loan rates offered by most banks and financial institutions. Your interest rate is variable because it will be calculated based on your outstanding balance.
How hard is it to get an unsecured loan?
It is challenging but not impossible to get an unsecured loan. You will have few options and the interest rates can be quite steep (especially if you have poor credit score).
What is a personal unsecured installment loan?
A personal unsecured installment loan provides you with access to a certain amount of money. It will enable you to borrow money without using it against the equity of your home, which makes it an unsecured loan.
Can unsecured loan become secured?
Yes, it can be switched to a secured loan if the creditor can secure judgment in a lawsuit. When a creditor is unsuccessful in collecting payments, they will file a lawsuit against the debtor to secure that judgment.
Can unsecured loans be written off?
If the creditor has not obtained a County Court Judgment, and they have not pursued your unsecured debt for 6 years, it can be legally written off. This is based on the “statute of limitations” that had been specified by the state law.
What happens if you don’t pay an unsecured loan?
Unlike in a secured loan wherein the lender can obtain possession of your assets (such as home or car), the only way creditors can pursue an unpaid unsecured loan is by suing you and getting court judgment. When this happens, your unsecured loan becomes a secured loan, giving the creditor the power to seize your property or assets (or even take your wages) to get payment.
Unsecured Personal Loans and Your Credit
Want to know how unsecured personal loans have an impact on your credit score? If you have any questions concerning your credit, this is the place to find the answers for them.
What credit score is needed for an unsecured personal loan?
Borrowers with a good credit score – from 690 to 719 – can easily qualify for unsecured personal loans.
Can you get an unsecured personal loan?
In order to qualify for an unsecured personal loan, you need to meet a certain credit score requirement set by each lender or bank.
How to get unsecured personal loan with bad credit?
Unsecured loans for people with bad credit are difficult to qualify for. If you do not want to provide collateral, you can opt for a co-signer instead.
How many unsecured loans can I have?
You can apply for as many unsecured loans as possible. However, since unsecured loans have higher interest rates, you have to make sure that you can afford the monthly payments for these loans.
How does an unsecured loan affect credit score?
Unsecured debt and personal loans are reported to the credit bureaus. Your payment information will also be reflected, which will have an impact on your credit score.
Can you get an unsecured loan with bad credit?
Yes, but it won’t be easy. You can find banks or lenders that specialize on people with bad credit.
Can you file bankruptcy on unsecured loans?
Some unsecured debts are wiped out when you file for Chapter 7 bankruptcy. However, there are other types of unsecured debt that won’t be discharged when you file for bankruptcy.
How to calculate interest on unsecured loan?
Banks and lenders use a variety of factors to determine the interest rate on unsecured loans. The first thing they would look into is the borrower’s credit score and their overall financial history.
How to get an unsecured loan with no credit?
You might find it difficult to get an unsecured loan if you do not have credit history. You will be considered a risky borrower because lenders have no financial information to assess your capacity to pay from. It will be just as difficult for people with bad credit.
Do unsecured loans show on credit report?
Yes, personal loans (secured or unsecured) will appear on your credit report.
Do unsecured loans affect your credit?
While unsecured loans will show up on your credit report, it will not have a direct impact on your credit score, especially if you make on-time payments. The only way it will affect your credit score is if you fail to make your payments, or make no payment at all.
Unsecured Personal Loans Provider
This section provides a list of commonly asked questions about choosing a provider of unsecured personal loans. If you want to know what your best options are, you can get the answers you’re looking for below.
Where can I get an unsecured personal loan?
There are several banks that offer unsecured personal loans. However, big banks have stiffer requirements, so online lenders and credit institutions would be a good option too.
Where to get unsecured loan with bad credit?
Getting an unsecured loan with bad credit is difficult, but not impossible. You can start your search for lenders that specialize in offering loans for people with bad credit. If you can get an unsecured loan, you can expect to pay a higher interest rate.
Which banks offer unsecured personal loans?
There are several banks that offer unsecured personal loans. You can visit your local bank to determine if they offer this type of loan, and whether you qualify or not.
Who offers unsecured personal loans?
Most banks and lending institutions offer unsecured personal loans. You have to compare each option to find the ones that can offer the best interest rate.
Can pvt ltd company take unsecured loan from outsiders?
No. A private limited company cannot take loan from outsiders.
What is an unsecured loan broker?
An unsecured loan broker is someone who links borrowers, who are looking for unsecured loans, to creditors. They will get a commission in return for facilitating the approval of your unsecured loan application.
Unsecured Personal Loan Types
In this section, you will discover the different types of unsecured personal loans available to consumers.
What is an unsecured car loan?
It is very rare to find unsecured car loans in today’s market. In the rare instance that you can find a lender that will provide unsecured car loan, the loan is typically charged with higher interest rates.
What is an unsecured bank loan?
An unsecured bank loan is a type of loan that is issued by the lender based on the borrower’s creditworthiness (instead of the value of collateral).
Is a small business loan secured or unsecured?
A small business loan can be secured or unsecured. It will depend on your lender and how they evaluate your credit-worthiness by the time of the application for the loan.
Is a home equity loan secured or unsecured?
A home equity loan is a secured personal loan because it is tied to your home.
Is a 401k loan secured or unsecured?
A 401k loan is a type of secured debt because it is tied to your 401k plan.
Is a car loan unsecured or secured?
A car loan is a type of secured loan because the vehicle itself is secured to that loan. In the event that you fail to complete the payments for your car loan, the vehicle can be repossessed by the bank or lender.
Are payday loans unsecured debt?
A payday loan is a type of unsecured loan, regardless if the borrower’s payday is linked to that loan.
What is unsecured business loan?
An unsecured business loan is a type of funding for businesses that is not tied to a collateral, or business asset. Most lenders require good credit standing and sufficient cash flow from small business owners.
What is the best unsecured personal loan?
Banks and lenders calculate the interest rates and determine the terms on unsecured personal loans based on every borrower’s individual financial situation. To get the best unsecured personal loan, you can get a quotation from as many lenders as possible and compare which ones offer the best terms for your situation.
Is consumer durable loan secured or unsecured?
Consumer durable loan can either be secured or unsecured, depending on your loan provider. Most banks and loan providers offer both variants for this type of loan.
How to get unsecured business loan?
Small business owners who wish to obtain unsecured business loan can start with the SBA. But there are many lenders and loan providers that offer unsecured loans for business owners. Do your research and make a thorough comparison.
Christine has a solid background in personal finance as she spent the last eight years working at one of the biggest banks in the US. She managed her own team of financial advisors that helped hundreds of people with their financing needs. Her innate understanding of different financial products and loans helped her move up the ranks quickly after graduating with a degree in Business Administration.