Most folks at one time or another need to borrow money. The uses for the money can be great and small, from a house, car, or an education, to buying an appliance or patching up the household budget. For most of us, unsecured personal loans are often the best and easiest option. Lenders have no collateral requirements, such as a home or a car, nor do they care how the loan is going to be used. Unsecured personal loans are great for folks who do not have, or do not want to obligate, any marketable financial possessions. Also, because no collateral is presented, there are no lengthy verifications, underwriting requirements, or property appraisals to contend with.
Unsecured Loan Basics
Often, borrowers are in need of cash quickly. Unsecured loans are an expedient undertaking, more easily done than mortgages or home equity lines of credit. Unsecured loans are based solely on creditworthiness.
The most a lender will ask for is an application and access to credit reports. Since unsecured loans have no collateral to back them up, amounts may not be as generous as secured loans. But, finding loan amounts up to $25,000 is not impossible.
Repayment periods vary widely according to factors such as lender policies, individual credit scores, and other requirements that differ from lender to lender. Repayment periods can range from one to several years. Credit cards can be the most expensive form of unsecured loans. Unsecured lump-sum loans do not have the interest rates of those financial instruments, but they will be higher than collateral-based loans, because of the higher risk of default.
What Lenders Look for When Granting Unsecured Loans
Since there is not collateral offered, unsecured personal loans are granted based on the past credit performance of the borrower. So, the better your credit score, the better able you will be to land an unsecured personal loan. Folks with mediocre or even poor credit scores can still land an unsecured loan. Other factors outside of the credit history will be considered as well. Lenders use statistical formulas and probability theory when they underwrite these types of loans.
Indeed, people with the best credit scores will receive lower interest rates, longest terms, and most generous loan amounts. Borrowers with past credit smirches may only get a chance to borrow small amount repaid within a short period of time. But, along with credit score, lenders look at employment histories, disposable income, size of family, and other aspects of personal and financial realities.
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