A personal unsecured loan allows a person to borrow money for any reason they need. This includes new business and even high-end products like jet skis or new cars. Once they decide to get a personal unsecured loan, they should definitely explore their options.
First, one should understand what it means for a loan to be unsecured. This means that there is no necessary collateral to obtain a loan. If the situation gets worse and the loan is not repaid, the risk is reduced because no property will be lost or held until the loan is repaid. This is more comfortable for most people because there are no immediate consequences to give them time to recover.
Much of the risk lies with the lender of a personal unsecured loan. If the loan goes south, they have nothing to sell to recoup the amount. They will undoubtedly pursue funds and even take legal action against borrowers, such as withholding wages. Borrowers should expect higher interest rates due to the high risk. Plus, loan acceptance does depend to some extent on credit. Good credit equals lower interest, while bad credit can result in higher interest or even a co-signer.
Here are the basic types of personal unsecured loans:
Signature Loans – These are the simplest variants of unsecured loans. They are only guaranteed by the borrower promising to pay. They are available at credit unions and banks, and the money can be used for anything. The fact that they are installment loans means they are borrowed and repaid in fixed monthly payments.
Even better, a signature loan can help a person build credit and get better future interest rates. Therefore, it is by far the best personal unsecured loan on the market.
credit card – Another popular method for personal unsecured loans is to get a credit card. A bit on the risky side, they still give borrowers a ton of money to use as they please, no questions asked. A line of credit will be allocated and borrowers can charge as much as they want and repay it monthly.
The only downside to credit cards is that their interest rates can fluctuate wildly, and some cards start with a low interest rate and then go up after a while. It’s easier to spend with a credit card because shopping with a card is so easy. Offers exist online and by mail.
P2P or Peer Lending – Think of P2P lending as a form of personal unsecured lending. Basically, it borrows from an individual rather than a bank or other traditional lender. These loans are available online on select websites, and there’s a chance no one will actually get a loan, but it’s worth a shot. They are fixed rate installment loans and they do focus on credit.
Student Loans – Student loans are personal unsecured loans for education funds only. They’re a great option because they have features that aren’t readily available through other means. They offer flexible repayments, grace periods, and more. Some people don’t even care about credit scores, they only care if the borrower is a student.
These loans are available through the financial aid offices of participating institutions. Professionals there will help students through the application process and explain all the ins and outs.