Financial needs can come upon us suddenly, requiring immediate solution. Though we do not wish to find ourselves in this kind of situation, it sometimes finds us at a time when we are least prepared for it. The most obvious way out of it is to apply for a loan.
Taking a loan or borrowing money has been a common practice ever since time immemorial. However, this practice has evolved especially on the level of difficulty and the waiting time. To the benefit of many, there are now two forms of loans that you can get today. They are secured and unsecured. The secured type always requires that you pledge an asset of value as collateral, while unsecured doesn’t require such a collateral.
Unsecured loans are more popular because they provide an easy way for you to borrow money without a lot of things required. It is no surprise to see that many people prefer them over other options. You can easily borrow the funds you need without pledging your asset.
Since unsecured loans are quite easier to get, you might be wondering how you can get approved fpr such credit. Now, let’s discuss how to do so.
Places to Borrow Money without Collateral
There are a few places that you will be able to get a loan without collateral. Actually, a lot of lenders offer both types of loans and will allow you choose which you prefer. Below are some options to consider:
Family and Friends
A good source of unsecured credit is your family and friends. You have known them for a long time and it will be easy for you to ask them for help. To avoid ruining your cordial relationship with them, it is wise to treat this as you would do any loan. If possible, draft a contract and ask them for their terms. This way, you can repay on time and avoid problems.
Many commercial banks offer unsecured credit in form of personal loans to their customers. If you already bank with a financial institution, you can ask them for the options they can offer you. Some commercial banks are more likely to give you a loan with better offers if you have a long-standing relationship with them. You can read this article for more clarity on this and other related issues.
Consumer Finance Companies
These are organizations that offer personal installment loans, second mortgages to borrowers and other kinds of loans to its customers as its only service. You don’t need to have a credit report to get a loan from these companies. These firms are known for lending money to people who may find it difficult to get a loan from other lenders. However, the interest rates and offers of the credit they offer are higher than that of other lenders.
This is another place you can get unsecured credit from. You apply for the loan online or in person. To be eligible to borrow from a credit union, you need to make sure you have a membership with it. These places offer the best rates and terms to its members.
These are popularly called FinTech companies today. This is because they are technology-based financial institutions and often operate only online. While not all FinTech organizations will offer loans, most offer basic unsecured loans as part of the financial services they offer. Because they largely operate like regular banks, you may be able to get competitive interest rates terms when compared to credit unions or other lending platforms. In addition, they are known for processing applications very quickly and approving on declining within minutes. Once approved, you can expect the funds immediately or at the most within 24 hours after application.
Types of Unsecured Loans
The following are some of the options available for you:
This is one common type of loan without collateral. If you need money immediately or for an emergency, you can get a personal loan from a bank, online lenders, or credit unions. People borrow for different reasons. They do so to offset an emergency medical bill, to clear up a debt, to renovate their house, or to refinance a high-interest credit. The lender you go for will approve your loan based on your creditworthiness.
Student or Educational Loans
This is another popular unsecured facility designed for students who are finding it difficult to finance their education. There are two types of these available for students. You have the government-backed type and those offered by private financial institutions.
There are two variations of the government-backed type – the subsidized and non-subsidized. As a general rule, credit facilities or grants that you can get from the government will always have some additional requirements mainly because they usually come with much better terms. Private loans on the other hand, have less strict measures but come with high interest rates. You can go for any of these options and borrow money without collateral.
Line of Credit
This allows you to access a specific amount over a particular period. If you run a business or need access to regular funds on a revolving basis, a line of credit may be a good option to consider.
These are also unsecured credit. You apply for them without pledging collateral. The lender sets a limit to the amount you can spend with the card. The financial service provider may also stipulate a duration within which you’d have to repay the amount you’ve taken plus interest. Failure to make this repayment on time will adversely impact your credit score.
Features of an Unsecured Loan
Now that you know where you can access unsecured loans, as well as the different types available, let’s discuss some of the features or characteristics of this:
One of the main or key features of this is the interest rate. This rate ranges from 5 to 36% and it depends greatly on your creditworthiness. If you have a poor score, you are more likely to get a higher rate of interest on your loan.
This report shows your creditworthiness i.e. if you are eligible to take a loan. Although there are some financial service providers that don’t ask for this report, most do. It is important that you build your credit history. You can do this by taking up credit-building loans, paying your debt on time, and improving your financial situation.
Amount to Borrow
You are more likely to borrow smaller amounts when it comes to unsecured credit. Most lenders offer a borrowing limit to their borrowers. This is because they are taking a loan without collateral. If you want to borrow a huge sum of money, you will have to pledge collateral.
This is another feature to take note of. Every unsecured loan comes with duration. It can be between 12 months to 6 years, depending on the repayment terms. A credit with a lower interest rate and lower monthly payments has a longer duration while the opposite has a shorter duration.
You will have to pay an origination fee and closing charge when applying for a loan. These fees differ from one lender to the other. Also, some financial service providers may charge you for repaying your debt on time. This is known as the prepayment penalty. You need to understand how each of these charges works.
How to Qualify for the Best Unsecured Loan
So, how can you get this credit? What are some important requirements or factors that a lender will consider? Here are some common ones to keep in mind if you want the best offer:
A Good/Excellent Credit Score
An excellent score typically offers you the best interest rate on a loan. The preferred score is 670 and above. You can also get good rates with scores lower than 670 but the best offers are reserved for higher scores.
A Low Debt-to-Income Ratio
Another thing that the lender will check is your debt-to-income ratio (DTI). This percentage must be as low as 36% and below. A low percentage shows that you can make your monthly debt payments without issue. Also, it shows that you have a good financial status and don’t default on your debts.
A Stable Credit History
Lenders give money to people who have consistently repaid their debts on time on different accounts for many years. These accounts can be auto loans, credit cards, or home improvement credit. The longer your history, the better the offer you receive.
A Steady Income
This is another factor lenders consider. Having a stable job and paycheck gives the financial service provider the impression that you have enough to repay the debt. Also, make sure you never borrow more than you can pay back or above your means.
If you have a poor credit score, some lenders can still provide an unsecured loan to you with another person’s score. This person can be your trusted friend or family member with an excellent or good score. The individual will serve as a co-signer for the loan and should you default, the person will have to repay the debt in your place.
How to Apply for an Unsecured Loan
The following are some of the steps to take when applying for this:
Ensure that you shop around for the best lender. When you find one, make sure you prequalify with the provider before applying for the loan. Pre-qualification allows you to know the potential amount you can borrow and the interest rate of the loan. Your credit report will not be affected during this process.
Once you’re pre-qualified, it’s time to apply for unsecured credit. Most applications are carried out online these days; all you need is to submit your personal contact information and other important documents about yourself. If you would like to know more about the necessary things you need, read here https://www.forbrukslån.no/låne-penger for more information.
Close the Loan
You may need to pay some closing fees to the lender. After doing so, the money you applied for will be sent to your account that same day or a few days after approval.
Borrowing money without collateral is a good way to access funds for different purposes. Make sure you choose the right lender and keep the above information discussed in mind as you make the right choice.