The Advantages of Unsecured Loans

Easy Approval. Unsecured loans grant easy approvals for almost anyone. There are a variety of unsecured loans to match your needs- whether you’re a tenant, a student, unemployed, someone with bad credit or no credit history.

Quick Process. Application can quickly be sent online and you can expect to get a response within minutes or on the same you submitted. As soon as you’re approved, the money will be deposited in your bank account or you may choose to get it through wire money transfer.

Little Paperwork. Unlike secured loans where you need to submit collateral, there’s very little paperwork required with unsecured loans. Usually, all you need is proof of income such as a copy of your payslip or tax presentations and an active savings account.

Fixed-interest rate. An unsecured loan must have a fixed interest rate so that means you monthly instalment fees should not change from the start until the end of your repayment term.

The Disadvantages of Unsecured Loans

Higher interest rates. The absence of collateral makes it a riskier business for lender. To make up for the risk, lending companies charge higher interest rates on this type of loan. Nevertheless, if you have a very good credit history, you should be able to request your lender to lower your rates and fees.

Limited loan amounts. Loan amounts are limited to avoid the risk of delinquency. The limit may depend upon the lending company and the Lending Laws that govern your State.

Shorter repayment period. The repayment term varies from one lending company to another. However, unsecured loans tend to have much shorter repayment period.

Pre-payment penalties apply. A lender expects you to pay off your loan in monthly instalments according to the period agreed. However, if you choose to pay off your outstanding balance in an earlier time, you’ll be subjected to pay a pre-payment penalty. This is to make up for the loss of interest fees you’re supposed to pay your lender during the remaining time of your repayment period.

However, although there is no collateral involved, a borrower must still be very careful about choosing unsecured loans and take their repayment obligations seriously. Consider the following pointers about unsecured loans that you should know before trying to obtain one.

What You Can Expect from Unsecured Loans

Unsecured loans tend to have higher interest rates because of the higher risk involved for the lender. This is why it is important to ensure that your unsecured loan will have a fixed-rate rate of interest, not a variable or adjustable one. With a fixed-rate loan, you can know exactly how much you need to pay each month from the beginning until the end of your repayment period.

Loans without security are usually limited to smaller value to prevent the risk of defaults. Most lending companies will often extend up to 45% of the borrower’s monthly income and no higher than that. If you have a higher salary, then you may be able to get a bigger loan value. Needless to say, the first thing that lenders will look for before approving your unsecured loan is your capability for payment.

Borrowers with good credit history or a high FICO score can expect to get approved easily for unsecured loans. If your credit report shows how well you managed your other debts or other accounts, then a prospective lender will surely have more confidence in your repayment capability.

Getting The Better Deal from Your Unsecured Loan

Despite the absence of security, it is still worth a try to ask your lender for a lower rate. This is especially true if you enjoy a high credit rating. IF a lender refuses to lower your rate, you may try to negotiate with other lenders. By doing so, you can compare one lending company from the other until you find the best possible offer.

When applying for unsecured loans, you’ll want to make sure that you’re dealing with a legitimate lending company. Watch out for lenders who may try to entice you with very low rate and low fees. Despite the attractive offer, you still want to spend time studying the background and credentials of the lending company.

Once you’ve found a potential lender, spend more time reviewing your unsecured loan application to make sure that there will be no hidden charges or extra fees that are not stipulated in your contract.