Unsecured loans are the most common types of loans available. Sometimes referred to as signature loans, unsecured loans can be found at banks, credit unions, private lenders, and bad credit lenders. Unsecured loans have plenty of benefits to them as well as some disadvantages. Depending on your particular needs, an unsecured loan might be the way to get if you need cash either short term or long term.
What are Unsecured Loans?
Unsecured loans are loans that are granted without any form of collateral. The term signature loan refers to the fact that the borrower’s signature signifies their promise and intent to repay the loan in the specified time frame or face any fees or other consequences spelled out in the loan contract. Unsecured loans are considered an alternative to secured loans. Secured loans require some form of collateral in order to secure the loan, and give the lender recourse in case the borrower defaults on the loan.
If you’re not in a position to offer a form of collateral, unsecured loans can be a great choice for you. The level of commitment isn’t quite as high as a secured loan for most people due to the fact that the borrower doesn’t risk the chance of losing their personal belongings if they fail to repay the loan. However, if you do default on an unsecured loan, it will cause significant damage to your credit score. And if you already have bad credit, the last thing you want to do is lower your credit score further and risk the chance of having to file bankruptcy if you haven’t already done so.
Due to the fact that unsecured loans don’t require any form of collateral, they typically have higher interest rates than secured loans. Don’t worry; the interest rates are not outrageous amounts, or usury. Depending on your credit score, the interest rate you get for your unsecured loan might actually be quite reasonable. Depending on the type of unsecured loan you get, your credit may play a role in the amount of interest you’re charged.
Types of Unsecured Loans
There are different types of unsecured loans available. Depending on your credit score, employment status, or other factors, you may choose one type of unsecured loan over another. Here are some popular types of unsecured loans:
Payday Loans: These are small short term loans that to be paid back on the borrower’s next pay day. These loans are very popular for people with bad credit because they often times don’t require a credit check. As long as you’re employed and make over a certain income each month, you are likely to qualify for a payday loan.
Same Day Loans: These are loans that are given out the same day as you apply for it. They are fast and very convenient. They don’t require a credit check or a background check which is part of the reason you are able to get the money so quickly.
Unsecured Bad Credit Loan: If your credit isn’t ideal, an unsecured bad credit loan is an option you have available to get funds within a short period of time. While these loans generally do require a credit check to determine the amount of interest you’ll be paying, they don’t use your credit score as a major determinant for approval. Bad credit lenders specialize in providing these types of loans for people with bad credit so they understand the financial hardships that people are going through.
There are other types of unsecured loans available, so you are bound to find one that fits your needs. Applying for unsecured loans is also very simple and can even be done online.
Unsecured Loans Help Your Credit
One of the best benefits of unsecured loans is that if you’re making your payments on time and repay the full amount of the loan, they can help improve your credit score over time. If you have bad credit and got approved for an unsecured bad credit loan; paying the loan off will help you to reestablish your credit. Conversely, if you fail to pay back the loan in full or miss payments, you run the risk of causing further damage to your score.