If you need to buy a TV or gadget you usually do not have to provide security to the lender. Usually, it is easy to get – you can even have a bad credit history and borrow couple of hundreds of dollars very fast.
Unsecured Loans Basics
Despite from the mortgage in case you fail to repay the unsecured loan none of your property will be seized by the lender. Once you fail to make a payment you will only get a notification and in case if you won’t pay at all such a case will be submitted in the court with a minimum of damage for you. However, your credit history will be spoilt.
On the other side, due to the higher risk for lender the interest rate enforced for unsecured loans is usually significantly higher for the secured ones. That’s why sometimes it is a bad idea to take such a kind of loan especially if you are going to buy something you can amass funds for in less than a month or two.
Just like any other debt the conditions depend on your credit history and income. The better credit history and the higher income you have the lower is the interest rate and the larger is the sum you can get. You can also improve conditions or get your loan request approved if you involve a cosigner.
Cosigner is a person that agrees to guarantee the debt will be paid. That means that if you do not pay for a debt properly cosigner has to do it instead of you.
Most Common Types of Unsecured Loans
There are different ways for you to get such a loan. The most common types of unsecured loans available are:
- credit cards
- signature loans
- peer-to-peer lending
- student loan
Credit cards are provided by all banks and are usually offered to all bank customers. With credit card you can open a credit line – an amount of funds you can freely use for a specific period. For example, you can have a credit line of $400 (usually it is much more higher sum). You can use $50 from these $400 and the interest you pay will only be eligible for the mentioned up $50. However, some banks offer a grace period which means you can use credit card funds for free for a given period of time (usually 30-45 days).
You also can request increase of your credit line or it can be done automatically by your bank if your credit improves. This tool is very valuable if you need some extra cash for your day-to-day expenses.
Apart from credit card the signature loan can be offered not only by banks. You can take it from credit union or any other type of lender as well. All you need to do after your loan is approved is to leave a sign under the loan agreement.
This tool can be used to make some kind of purchase or get some cash until you reach the pay day. The advantage of such a kind of loan is that it is not necessary to point out the purpose you are taking money for, so the funds can even be used to start your micro business.
The serve the debt you only need to pay a fixed sum monthly and on time. And signature loan is a good way to improve your credit history as the interest rate is usually quite low.
Peer-to-peer lending is more like a signature loan – the only difference is that you borrow from a physical person or organization on a specific p2p lending website. P2p lending is a good way for individuals to earn so there are many options for you to get money. You only need to post a loan request and wait for p2p lenders’ offers.
You should know that this kind of loan is usually worse than taking a bank loan as physical lenders usually offer money at a higher interest rate. However, if you have a bad credit, this can be an only option for you to borrow money.
Taking student loan is one of the most important decisions you can ever take. Usually student loans demand taking as a debt a large sum of money and in order to repay it you may need years of hard work. However, there are many loyalty programs and flexible conditions offered by many banks for student loans.
As a student you usually do not need any security for the loan if you have a good credit history, however, usually parents are taking these loans as an aid.
What Is the Limit for Unsecured Loan?
Actually there is no limit. Some people own credit cards with unlimited credit cards – however, those are usually relatives of billionaires banks are sure in. It is hard to calculate a loan limit personally – it can only be done by your bank or lender.
Unsecured loan is a convenient choice either if you need some extra cash or a big sum of money and whether you get it or not depends fully on the credit you have in the eyes of the lender.