A personal loan can be a lifesaver in emergencies. As long as you qualify, personal loans allow you to access the cash you need when you need it. Whether you’re using the loan to buy a new phone, pay for school tuition, settle medical bills, or consolidate other debts; all you need is to find the right lender to work with.
Understanding Unsecured Personal Loans
When you’re looking for a personal loan, it’s important that you understand the two different types – secured and unsecured. That way, you’ll be able to determine which product best suits your needs and qualifications before applying for a loan.
An unsecured personal loan is a handy option if you want extra money for just about any reason. On the other hand, a secured personal loan offers its own advantages, such as higher loan amounts and lower interest rates. Here are the main differences between secured and unsecured personal loans:
- Collateral: Unsecured loans differ from secured loans because you need to put up your home or other property as collateral for the latter. In case you fail to repay your borrowing on time, your lender can take your property and sell it to recoup losses. Without an asset to put up as security, you may not be granted a secured personal loan.
- Interest Rate: Lenders are in business to make money. Loan providers may take extra steps to ensure that they will still make money from providing you with their loan. Unsecured personal loans come at a higher interest rate because they are seen as riskier than secured loans.
- Terms: You can enjoy more extended periods of repayments on a secured personal loan. Payday loans are a typical example of unsecured personal loans, which you usually have to repay within a few days, or as the name suggests, by your next payday. Otherwise, you’re likely to incur substantial interest and fees.
All types of borrowing come with qualifications and requirements, which may vary from lender to lender. The typical requirements for any loan product are the age of the borrower, address, work and financial information. Depending on the lender you work with, your credit history may also be scrutinized. Traditional loan providers such as banks and mainstream lenders typically have more stringent loan processes which may not work for you if your credit is low or you need cash fast.
When looking for unsecured personal loans, it’s a good idea to shop around as much as possible. You can do this from the comfort of your own home. Non-traditional lenders offer online applications, making the whole process easier and faster. It also allows you to compare the different rates and terms of other lenders. Before applying for an unsecured personal loan, make sure you are dealing with a licensed loan provider. There are plenty of unauthorized or rogue lenders preying on borrowers online; you will therefore have to be vigilant in verifying that you’re working with a reputable direct loan provider.
Top 5 Tips To Qualify For Unsecured Personal Loans
An unsecured personal loan is a reliable way to get cash fast. Because collateral does not secure this type of loan, you don’t need to worry about losing your property if you fail to pay your loan promptly. Although unsecured personal loans are relatively easy to qualify for, and you can find them just about anywhere, your application may still get declined due to various factors. To avoid the frustration, check out these five tips that can help improve your chances of qualifying for an unsecured personal loan.
- Review Your Credit History Regularly
Since unsecured personal loans offer no money down option, lenders will run a check on your credit record to determine if you’re capable of repaying the loan. Your lender will assess your creditworthiness and decide whether or not you are a suitable candidate. When you apply for a loan online, it is not unusual for them to check your credit history beforehand to ensure that you are a reliable borrower.
- Before applying for a loan, you should find out what your credit status is. If your credit score looks good, you will have fewer difficulties getting approved for an unsecured personal loan.
- It’s recommended to review your credit report annually. It’s a must to inform credit reporting agencies of inaccuracies or errors, since this can help you avoid disqualification for your loan application.
- If you suffer from bad credit, you may want to work on improving your rating before applying for any loan product. Your credit rating can influence your loan’s applicable rates. Therefore, you should be prepared to pay higher fees if you want to continue your bad credit loan application.
In most cases, your credit scores will determine your interest rates, so it would be best if you improve your credit scores by paying off any debts or bills. Otherwise, you might not get the best deal from online lenders.
- Verify The Requirement Before Applying
Those who wish to apply for unsecured personal loans can do so online, as long as they meet the lender’s requirements. You have to check whether you meet the specific criteria of the loan provider. Aside from wasting your time and effort, rejected loan applications can leave a negative mark on your credit history. Sending multiple loan applications is also a no-no since lenders will regard this as a sign of desperation.
- Borrow Based On Your Affordability
Before applying, borrowers should first be sure of the amount they need and the time frame they can realistically accommodate to repay it. Borrowers may want to calculate their budgeted monthly income to make sure they can afford to pay back the money they borrow. Because unsecured personal loans carry a more substantial risk for lenders, they generally come with higher interest rates than secured ones. A loan provider will calculate your affordability based on your income, current debts, and monthly living expenses. Your chances of getting approved are lower when you request for too significant a loan amount, since the lender will determine that you’ll have difficulty repaying your debt.
When you take out an unsecured personal loan, you’re borrowing money without any collateral or equity. There is a great deal of risk that goes along with the entire process. Many lenders will only offer unsecured personal loans with very high-interest rates because a borrower lacks the collateral and equity to cover that risk. The danger is also in not repaying the debt in time. If you’re not careful and take up too much debt, your credit score will be damaged, and you may end up in a non-ending debt cycle.
- Have Supporting Documents Ready
Make sure to prepare all the necessary documents and paperwork for your loan application. Some online lenders will ask you for your supporting documents before they approve your application, so you need to make sure that they have your records ready.
- Have your financial statements on hand before you even start the application process for unsecured personal loans. Prepare your bank statements and other important financial documents before you submit your loan application.
- If you’re currently employed, have your pay slips and other employment documents ready to submit. The papers should be certified or verifiable so that the loan provider can make an instant decision to approve your loan request.
Loan providers, whether traditional or non-conventional, will usually check your employment details to check whether you can repay the loan amounts fully each month. If they feel that you could not keep up with repayment, then they may decline your application.
- Be Honest
When you need cash fast, an online lender may be your only option to obtain funding. Every borrower’s circumstances are unique. You may have good credit but currently be unemployed. Another borrower may have bad credit whilst working with a good salary. In any case, it’s crucial to be honest with your lender about your current situation.
- Avoid stating half-truths in your loan application form. Lenders have ways to verify the information you submit to them.
- If your credit is low, you could try to consult with the loan provider first to find out what options are available to you. Because the lending industry is very competitive, you’ll have no trouble finding an honest and reputable lender who can accommodate your request.
Qualifying for unsecured loans can be challenging if you don’t know the process to follow or what to avoid when making an application. An unsecured personal loan can be used for a multitude of purposes, unlike mortgage or car loans, which are typically used to acquire those particular things. Unsecured personal loans come with their own set of risks and drawbacks. It’s therefore crucial to understand all of the disadvantages beforehand. For example, getting an unsecured personal loan with reasonable interest rates may be challenging if your credit rating is low. In this case, it’s best to seek a loan provider that specializes in bad credit unsecured personal loans.
Different online lenders offer personal loans for people with a variety of credit scores. If you look around online, you may be able to find better rates than what a local lender can offer you. Compare as many online lenders as possible. The more information you possess to base your decision on, the easier it will be to find the best deal.