What Is An Unsecured Loan?

When applying for a loan there are generally two types of loans that are available. These types of loans are secured loans. An example of a loan of this type is an automobile loan. The other type of loan is an unsecured loan. These loans use the borrower’s signature as a contract with the lender. There is not any type of property that can be collected if the debtor fails to remit payment. An unsecured loan will generally have a higher interest rate than a secured loan because of the risk that the creditor is taking. Examples of an unsecured loan include personal
loans, which are sometimes called signature loans, and cash advance loans. These loans have many uses. They can be used as a debt consolidation loan, a home improvement loan, student loan, or whatever else the money is needed for.

Credit Risk

When a person applies for a personal loan the lender will take into account all factors of the applicant. The factors include credit history, amount of income and the amount of the loan that is being requested. Personal loans involve a risk to the lender so they are very careful with whom they lend to.

After the lender checks all of the factors listed above the decision on whether or not to give the loan will be made. It will also decide what interest rate to charge on the loan and how much time the loan needs to be paid back within. If the applicant has less than stellar credit and are approved for the loan the interest rate will be higher than that of a person with good credit.

Advantages of an Unsecured Loan

The biggest advantage of an unsecured loan is that there is no collateral or security needed when applying for the loan. Many applicants think that unless they own a home with equity involved they will not be able to obtain a loan. This is not true. Unsecured loans are available to all including renters. The needed money from the loan is usually received quicker than a secured loan because there is not any time wasted in appraising the value of an item that is being used for collateral on the loan. If the money on an unsecured loan is being borrowed over a short
period of time the interest rate paid out will not be extremely high. The longer the repayment terms the more interest paid out will be.

Is an Unsecured Loan Right for You?

An unsecured loan is the perfect type of loan for someone who does not have a home to borrow against or a vehicle that is owned. Sometimes the borrower will have these assets but they are already tied up in other loans or debts. When considering an unsecured loan it is important to be sure that the loan received can be paid back easily and will not cause more credit problems in the future. After all bad credit will not help situations in the future.

This article is written by Dawn Stevens, an expert writer in finance topics like loans, debt, insurance, mortgage etc. Also she works for top loans for bad credit company. You can visit here for more information.