A loan is most likely the best help you can get when you need cash and there’s no one else to turn to. You’ve got plenty of options to choose from, as there are many lenders as much as there are many types of loans out there.
The most common form of loan is the unsecured personal loan. While a secured loan offers low interest rate because of the guarantee attached to it, an unsecured loan is also viable options. It is also possible to get low interest rates on unsecured loans if you have a good credit history.
If you are not a homeowner or do not have any valuable asset or if you have but not willing to put it up as a loan guarantee, then go for unsecured loan. Read on to learn more about the ins and outs of unsecured loans.
What are Unsecured Loans?
From the word itself, you would understand that unsecured loans are a type of credit that do not rely on any form of security or guarantee. They are issued and supported only by the borrower’s creditworthiness, and not by any type of collateral.
So with unsecured loans, you don’t put your home at risk in case you cannot repay your loan. This means the risk is on the lender’s side. If you default on the loan, the lender could do nothing about it. However, the lender may bring the case to court and make some legal actions.
That is why, it is best to keep up with the agreed repayments of your loan. Missing payments or making late payments will have a negative impact on your credit rating as well. It will make obtaining credit in the future more difficult for you. Your assets or property may not be at risk in case you can’t pay your loan anymore, but your credit rating will be greatly affected.
Unsecured loans, which are sometimes referred to as personal loans, are all dependent on the borrower’s credit score. In most cases, borrowers must have high credit ratings to be approved for unsecured loans. However, there are certain types of unsecured loans that are designed specifically to cater those with low credit scores.
Taking out Unsecured Loans
When you apply for an unsecured loan, you will be assessed based on your personal circumstances and credit history. Lenders will evaluate your creditworthiness and ability to repay the loan. With an unsecured loan, your own financial history is used as a deciding factor.
An unsecured loan is a helpful option to cover small purchases or expenses. Unsecured loans are not target for businesses, and they are intended for personal financial needs. Some people use unsecured loans to pay off upcoming bills, while others use them to spend for vacations or even consolidate existing debts.
Surely, you would want to get the lowest rate from your unsecured loan, but you’ll also want the flexibility to choose a term that works for you. Look also for unsecured loans with low or no extra fees, and a lender with whom you’re comfortable doing business.
You need to consider several factors when searching for the best unsecured loan. If you want to get the best deals for an unsecured loan, you need to check on the APR, other fees and charges, repayment period, loan limit, and the reputation of the lender. You can take out an unsecured loan from banks, online lenders, credit unions, peer-to-peer lending companies, and other private lenders.
Compare APRs and fees.
Compare the APRs or annual percentage rates offer by different lenders. The lender’s advertised APR may be the same with or better than those advertised by the competition. APRs vary among lenders, so get the loan that offers the lowest APR as possible.
Choose a lender who offers loans with low or no fees at all. Some lenders charge fees on top of the interest. Some lenders may charge reservation fees, service fees, late payment fees or early repayment fees. If fees are included, they should not be that high. It definitely pays off to look around.
Consider the loan limit.
Although it is wise to borrow only what you need, you may want to maximize your loan by getting the highest loan amount the lender can offer you. You want to work with a lender who would consider the amount you need. While you want to be cautious not to borrow more than you can afford, the best lenders won’t cap their loans, and let you borrow the amount you need.
Think about the loan term.
Another factor you need to consider is the repayment period or what they call the loan term. Some lenders only allow you to choose from a couple of terms, such as one or three years. But, there are lenders who would allow you to have flexible terms. You would want a thoughtful lender who would allow shorter or longer terms.
Look for a transparent lender.
A responsible lender has a transparent and informative website. The best lenders are transparent about their APRs, loan limits, repayment periods, fees and charges, and other crucial information. It should also be clear for any borrower where to get the loan details, and you shouldn’t have to give your personal information in order to see it. Transparency about the details of the loan is very important. Some lenders may have hidden fees.
Check the reputation of the lender.
Good reputation is equally important. Check out each lender’s history and background, the number of years they are existing, their customer reviews, and whether they are accredited. It is definitely a plus for the lender if it has an accreditation, though not a necessity especially for newer companies. However, when you read customer reviews, look at them objectively. Some customers would just express their frustration and anger because they simply did not qualify for a loan.
While it is good to get a secured loan for you to get a lower interest rate, unsecured loans are also practical options. You can still get a low interest unsecured loan when you have a good credit score. Otherwise, search and compare lenders’ offerings, and take out the loan that is suitable for your financial need.