You can fund family events like weddings, travel and vacations. Medical emergencies or home repairs can also be resolved with the help of unsecured loans.
Whether it is buying a new car, improving your home or consolidating your old credit card debts, taking an unsecured personal loan can be the perfect solution to all your financial problems. It can also be the source for extra cash to fulfil your immediate needs. If you are looking for such a loan there are some basic things that you need to know in order to avoid any confusions later.
1. What exactly is an unsecured personal loan?
An unsecured personal loan is given to you on the basis of your credit worthiness, earning potential, or current assets. The assets are not an important criteria as they are not considered for this type of loan. If you have a good reputation or a good credit history you have an excellent chance of getting an unsecured personal loan approved.
2. Difference with secured personal loans
Secured loans as the name signifies are backed by collateral (e.g., a house, a car). This type of loan requires you to have assets, unlike that of an unsecured loans where you do not have a collateral to back you up. Lenders prefer giving secured loans as it reduces the lender’s risk in case the borrower fails to make the payments. In that case the collateral can be sold by the lender to recover the money.
3. What are the steps involved?
You apply for an unsecured personal loan from a bank or a financial institution. There are a number of documents that you need to submit for verification of your identity and as a proof of your ability to pay back the loan. You will also need to sign a “Promissory Note” which will have the terms and conditions of the loan clearly defined. You may or may not need to get a “Guarantor” to sign the Promissory Note. This means that in case you cannot repay the loan the guarantor have to do so.
4. How does the lender receive the payments?
Though the terms and conditions of the unsecured loans vary from lender to lender the payment options are nearly the same. The lender usually gets the entire amount up front. The monthly instalment amounts are fixed along with the interest rates that you need to pay. However if you can negotiate well with your lender you can get some relaxations on repayment options.
5. Is there a penalty charge for early payments?
It actually depends on the terms and conditions defined by your lender in the agreement. However, in most cases you can pay off the balance early without facing any penalty. This will help you to resolve your debts sooner and be debt free.
Unsecured personal loans can be used to resolve your financial issues. You can use them to pay off high-interest debt like credit card or loan debt. You can also use them to make a new purchase like a house or a car or to fund family events like weddings, travel, vacations, etc. If you have immediate needs such as medical emergencies or home repairs you can also resolve them with the help of unsecured loans.
7. Where can you get unsecured personal loans?
There are a variety of options from where you can get an unsecured personal loan. It can be friends, family or financial institutions. Lenders from financial institution usually have a clearly defined set of guidelines that you need to follow. These vary among credit unions, professional organizations, P2P lending financial companies and banks. Your agreement with friends and family can be more flexible. However, a written contract is highly advisable as it protects the lender and borrower.
Here are items that are considered in the negotiations:
* Credit-worthiness (mainly, your credit scores and credit ratings)
* Job history
* Personal financial assets
* Low debt-to-income ratio
* Borrower’s reputation and relationship with the lender
* Lender’s personal knowledge of the borrower
*Lending community’s knowledge of the borrower.
Photo: Robby Virus