An unsecured personal loan is a sum borrowed without any collateral offered to the lender as a guarantee of repayment. When collateral such as a property or car secures a loan if the borrower defaults the lender recovers their money by selling the collateral. Since unsecured personal loan providers lack the security collateral provides, they charge higher interest and penalize loan defaulters and tardy installment payers. People with poor credit ratings find it difficult to get unsecured personal loans.
What Determines the Size of an Unsecured Personal Loan?
Each financial institution applies their own lending limits for certain categories of borrowers. As a rule, the size of loan offered varies according to the borrower’s credit rating. The better this rating, the less the risk the borrower will default so the lender it more willing to be generous.
What Determines the Loan Repayment Period?
Besides the lender’s business policy the repayment period is varied according to the size of the loan and the borrower’s ability to make the repayments. Usually, the larger the loan, the longer the repayment period, but when interest charges are considered longer loans work out more expensive.
How are Loan Interest Rates Set?
Unsecured personal loans often have fixed interest rates, but sometimes they come with variable rates. It is better to take a fixed interest rate loan since the variable rate option leaves the borrower unable to know for certain how much the loan will cost them.
Getting an Unsecured Personal Loan Application Approved
Supposing that a borrower has a poor credit score the lender is obviously going to be concerned over how they will keep up the repayments. They might want to check if the borrower owns a property and the salary they earn. Even though they are not given collateral, they may want this information to assess how much they want to lend and what they want to charge.
Don’t Borrow Too Much
Institutions offering unsecured personal loans obviously want to maximize their profits. The longer the loan repayment terms, the more they can expect to earn. The borrower should resist attempts to persuade them to borrow more than they need at this moment.
Calculating the Cost of an Unsecured Personal Loan
Most people take the yearly interest rate as the guide for working out how much they will need to pay back on the loan. It is more sensible to calculate the total amount to be paid until the loan is returned in relation to the amount borrowed when comparing different loan offerings. As well as interest this should include any administrative and other charges associated with the loan.
Unsecured Personal Loans Online
An online search immediately finds many websites offering tempting personal unsecured loans. Some require the applicant to fill in an online form while others present a number to call. An extra degree of caution is required when using an online loan service because of the possibilities this media offers for identity theft and other illegal activities.
8. It is Not Just a Matter of Interest Rates
While interest rates are of prime importance other conditions of the loan should also be evaluated. For example, does the lending institution allow early loan repayment without incurring an additional charge? The fewer additional charges associated with loans, the better.
Is an Unsecured Personal Loan the Best Choice?
People with the poorest credit scores often find it hard to get other types of loans but someone with a mediocre or better credit score ought to consider the alternatives. For example, using a credit card frequently provides a better interest rate for short-term borrowing.
The Local Bank
Someone might think that their own bank is most likely to offer them a good unsecured personal loan deal. While people are understandably more comfortable dealing with their own bank they cannot expect to find the best loan deal here. Banks don’t feel any need to make competitive offers to existing clients whom they consider already “in their pocket.” Finding the best loan deal requires comparing offers from a number of different lenders.