Getting an Unsecured Loan

Also called installment or signature loans , unsecured loans do not require collateral and can take many forms such as borrowing money from an individual, credit cards or bank loans. As such, there is less risk to the borrower and more to the lender. Compared to collateral loans, the loan amounts are lower and the payment terms shorter.

These loans are more difficult to obtain because approval is based on the borrower's credit score and/or reputation. It is more difficult to obtain unsecured loans with bad credit. Since the lender is taking on increased risk, higher repayment interest rates are charged based on the creditworthiness of the borrower. Additional fees are often assessed if the loan is not repaid on schedule.

In addition to the ordinary unsecured loan, there are a couple of specialized loan types that may suit your needs better, depending on your circumstances.

Debt Consolidations: These loans are used to consolidate all of your loan payments into one monthly payment. Your car payment, credit card, and other personal loans are paid by the institution providing you with the debt consolidation loan. You pay them a monthly payment toward the entire amount owed, plus interest. Rates for these loans are usually lower than credit card rates.

Unsecured Bad Credit: For someone whose credit rating has dropped below 580, it can be virtually impossible to get any type of loan, making it difficult for them to own a car or pay for home repairs. These are small, easily repayable loans. In order to be deemed creditworthy for such a loan, you need to provide proof of steady income.

Here are some things you should research before applying for a loan:

• Interest rate and total interest you will pay over the term of the loan. Credit unions usually offer the lowest rates.

• Loan repayment length and monthly payments.

• Fees (early pay-off fees, late fees, loan origination fees, etc.)

• Lender services such as online payments

Always do your homework before applying for a loan to make sure that the loan is in your best interests in the long run, not just immediately.