Unsecured personal loans are very common today. One can get these loans without having to provide any collateral. That means you don’t have to own a house or have anything of value to offset the loan if you can’t repay it. All one has to do is agree to the terms of the lender and sign on the dotted line. For this reason, unsecured personal loans are also known as signature loans. One can get this type of loan from various sources, both formal and informal.
First of all, family and friends can be a good source for an unsecured personal loan. The pros and cons must be considered in this scenario as non-payment as agreed could easily strain or sever long-standing relationships. Another unsecured personal loan to consider is a credit card loan. This is a common way of borrowing in our lives today, with credit limits on the card as well as interest rates varying according to different criteria. The third form of such credit is borrowing from a bank. The main criterion when borrowing from the bank is the creditworthiness of the borrower.
The steps required to access an unsecured personal loan include shopping for the said loan. The easiest way to do this is to use the internet and get free quotes whenever possible. Another way to do this would be to visit various financial institutions in person and make inquiries. What to look out for at this point are the various interest rates, fees, terms and other variables involved in taking out said loan. After finding a suitable loan, the application process can begin.
After submitting an application to the lending institution, the borrower is evaluated against the established criteria for unsecured personal loans. This may include looking at the person’s history of paying off other debts that were also unsecured. An example of this could be credit cards and other personal loans. They would also check if the borrower paid their debts on time and if they are employed and for how long. It is important to note that interest rates on such loans tend to be higher than secured loans as the bank usually bears the risk.
Since the loan is unsecured, the lending institution usually makes great efforts to allow the borrower to repay. If the person defaults on the personal unsecured loan, the lender has no choice but to report it to the credit bureaus, who in turn reflect this in their own credit score. If the loan was large, legal action can be taken against the borrower to force him or her to repay. It is therefore in the best interests of the borrower to repay the loan and avoid bad credit in the future.