How To Apply For An Unsecured Loan
If an unsecured loan is right for you, applying takes several simple steps:
Whenever you take out an unsecured loan, make sure you repay it on time to avoid damaging your credit score.
Secured Vs Unsecured Loans
If you’re considering applying for a loan or line of credit to help with a major purchase, you have a choice between secured and unsecured lending options. Secured loans and lines of credit are secured against your assets, resulting in higher borrowing amount and lower interest rates. Unsecured loans allow for faster approvals since collateral is not required.
Secured Or Unsecured Whats The Difference
A secured personal loan is called that because its secured against something you own like your house or car. That means if you cant repay the debt for some reason, the lender could sell the asset to get their money back. On the other hand, an unsecured personal loan isnt secured against your property and you can use it for just about anything without having to dip into or deplete your savings. Given that an unsecured loan doesnt have any security, the level of risk is higher for the lender which means the interest youre charged may be higher than on a secured personal loan. With either loan type, the amount you pay also depends on how much you borrow and the length of your loan.
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Whats The Difference Between An Unsecured And Secured Loan
If youve been looking into , youve probably come across two major categoriessecured and unsecuredand have been weighing the benefits of each.
Because theres a lot more to choosing the type of loan you want than eye-catching details like interest rates and monthly payments, it can help to understand just what an unsecured loan is, what you can use the money for, and how it could be a helpful financial tool before making up your mind.
With secured loans, lenders require collaterala valuable possession to secure or backup your loan.
The value matters because if you cant pay a secured loan, the lender wants to know there is something they can sell as compensation. To determine the value of your collateral, lenders may ask you to get an appraisal.
With unsecured loans, lenders dont require you to put up items you own, such as your car or home, as collateral to qualify for the loan.
What Is The Difference Between A Secured And Unsecured Personal Loan
Simply put, an unsecured personal loan is one where the lender allows you to borrow money without offering up an asset as security – usually your home. When a lender takes security, your home is at risk if you fail to make repayments.
To give a fuller explanation: secured loans are all around us, and the most familiar example is probably a mortgage. When taking out a mortgage, youll borrow a large amount of money, typically hundreds of thousands of pounds. That represents a serious risk to the lender – what if some of their borrowers dont repay?
To guard against this risk, they take security over the property thats being purchased. So if you stop paying the mortgage, the bank can take over the property to recover some or all of its losses.
A mortgage is just one example of a secured loan, and there are also secured personal loans allowing you to borrow much smaller amounts for shorter terms. However, they carry the same risk as a mortgage – your home is at risk if you fail to make payments.
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Types Of Unsecured Debt
Key Benefits Of An Unsecured Loan
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Often unsecured personal loans allow flexibility with loan amounts and repayment terms
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The lender does not typically require security in the form of assets such as your home or the need of a guarantor
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The interest rate will usually be fixed, so youll know how much your payments will be every month
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Unsecured loans can be more widely available than secured loans
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How Do Unsecured Loans Work
To get an unsecured loan, youll need to apply with a bank, credit union or online lender that offers personal loans.
If youre approved, youll receive the money in a lump sum in your account. Youll then repay the loan in monthly installments spread out over a set repayment term.
Monthly payments are typically fixed, meaning they wont change over the life of the loan.
Prepayment Penalties Or Fees
In addition to rates, consider the fees that often come with personal loans. Many lenders have origination feesfees you pay at the beginning for processing a loan, of 1% to 8%that help cover platform costs and late feeswhich are common and expected should repayment not be made on time. Many, though, may also have prepayment penalties or exit fees, which occur when you repay the amount owed before the loan term is finished. Because the total amount you owe may be tied to how long it takes for repayment, look for lenders who dont charge prepayment penalties.
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Looking For Fast Loans
Now that you have the answer to what is an unsecured personal loan, you may find that it is a good option for your financial situation. Here, we offer fast loans to help you be successful and achieve your financial goals.
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What You Should Know About Unsecured Personal Loans
Many different types of financial institutions, including banks, credit unions, online lenders and peer-to-peer lenders offer unsecured personal loans. Make sure to shop around to find the best fit for your financial situation.
Here are a few more things to think about when it comes to unsecured personal loans.
- No collateral You dont need to provide collateral to get an unsecured personal loan.
- Lenders will factor in your credit when making loan decisions, and people with higher credit scores typically qualify for lower interest rates.
- Fixed interest rate and term Many personal loans have a fixed rate and term, which means you make equal monthly payments over the life of the loan, so its easy to budget. But keep in mind that interest rates may be higher on unsecured personal loans than other loan types, such as auto or home equity loans, where your property is used to secure the loan.
- Loan amounts and repayment terms You can choose from a variety of loan amounts and repayment terms, but some lenders charge an origination fee to cover the cost of processing the loan, which can eat into your loan proceeds.
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Borrowing From Family And Friends
Family members can be a valuable source for borrowing money. Whether the loan is used to make it through a rough patch, make a down payment on a house or start a new business, family and friends can offer invaluable help for reaching your financial goals.
Family lending is huge in the United States. The Federal Reserve Board reports loans from family and friends total about $89 billion a year. Though family members can be a huge help, borrowers often dont repay their generosity. CNN Money says that about 70% of loans made by family and friends are either partially repaid or not repaid at all.
This most personal form of borrowing should be thought through and terms should be set in writing. A loan contract should include the amount borrowed, the interest rate if one is charged, and the repayment terms. The agreement should also spell out the lenders recourse if the borrower defaults. That includes restructuring the loan or taking legal action.
Understanding the transaction is key to both the lender and the borrower. Remember the difference between a loan and a gift. Loans come with promissory notes, and they must be reported on tax returns. The Internal Revenue Service requires that interest be paid on lent money. When you devise of loan agreement, make sure it includes an amortization table that spells out how much interest must be paid and sets out a schedule for payments.
What Are The Benefits Of An Unsecured Loan
Unsecured loans may offer more flexibility than secured loans. The application process may be simpler as you dont need to provide details of the asset you are using to secure the loan. There may also be more flexibility when it comes to making additional repayments. See more about the differences between unsecured and secured personal loans.
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First Tech Credit Union Personal Loan
Est. APR
Key facts
First Techs personal loans are a sound option for members who want a customizable debt consolidation loan with fast funding.
Pros
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Offers co-sign, joint and secure loan options.
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Able to fund loans within one business day.
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Offers direct payment to creditors with debt consolidation loans.
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Offers wide range of loan amounts and repayment terms.
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No origination or prepayment fees.
Cons
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Exclusive to credit union members.
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Reports payments to only one of the three major credit bureaus.
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No rate discount for autopay.
Qualifications
Est. APR
This APR includes an autopay discount.
Loan amount
None
Key facts
Wells Fargo personal loans stand out thanks to a wide range of loan amounts and flexible terms, but borrowers can’t pre-qualify.
Pros
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No origination or prepayment fee.
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Joint loan option.
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Offers wide range of loan amounts and repayment terms.
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Rate discount for autopay.
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Able to fund loans on same or next business day.
Cons
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Some features only available to existing customers.
Qualifications
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Must provide personal and contact information.
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Must provide employment and income information documentation may be required to verify this information.
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Must provide desired term and amount to borrow.
Available Term Lengths
Est. APR
Upgrade offers personal loans plus credit-building tools you’ll need strong cash flow to qualify.
Pros
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Mobile app to manage loan payments.
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Direct payment to creditors with debt consolidation loans.
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Long repayment terms on home improvement loans.
How To Get Unsecured Business Loans In Canada
Unsecured business loans have an interest rate based on the Bank of Canada rate, with additional interest added to reflect the lender’s assessment of risk. As with an unsecured personal loan, interest rates will be higher and terms and conditions more strict. Business loans are often secured by collateral such as machinery or property. Businesses with a strong banking relationship are usually able to negotiate unsecured lines of credit.
Launch or grow your small business
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When To Consider Secured Loans And Lines Of Credit
The primary advantage of a secured loan or line of credit is that you can generally gain access to more money, because you’re backed by the security of your assets.
Since secured lending products require collateral, the approval process can be longer as the collateral must be processed and verified. This initial due diligence can be worth the extra effort since you’ll benefit from lower interest rates. Large home renovations and debt consolidation are two instances in which you may elect to use a secured loan or line of credit.
Unlike smaller renovations, you may want to go through the process of obtaining a secured lending product when you’re looking at more extensive changes to your home. A secured line of credit would give you access to a larger credit limit with a lower interest rate, that you could access on an ongoing basis for large projects.
If you have outstanding debts, a personal loan secured by your current assets can help you consolidate debts into one loan. With lower interest rates than most credit cards, a personal loan can help you manage your monthly payments. A secured line of credit also offers convenient access to low-interest funds to help consolidate and pay down existing debts.
Qualifying For A Loan
Since most personal loans lack collateral, lenders will scrutinize your credit history, your income and your debt level before approving financing. Your credit history, and your credit rating, will help determine how much interest youll pay. The lower your credit score, the higher the interest rate and the less youll be able to borrow.
Since there are many varieties of personal loans, theres no single formula for qualifying to borrow. Payday lenders, for instance, will often loan money in anticipation of a paycheck or a tax refund. Payday lender often require a credit check, but might charge interest rates of 400% or more. The high interest can prove disastrous for borrowers, so be wary of such lenders and always consider the terms of the loan. Too many borrowers fail to understand how interest accrues and come to regret their decision.
Some lenders will transact with people will low credit scores but will charge relatively high interest rates often has much as 36%.
As a rule, avoid payday lenders and carefully evaluate repayment terms and interest rates before borrowing. Personal loans can be cheaper than credit card balances and offer a way to consolidate several debts into one.
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Cons Of Unsecured Loans
There are still a number of disadvantages you should consider before you commit to an unsecured loan. These are the cons of unsecured loans:
- Missed payments or default will have a negative impact on a borrowers credit score
- Default may result in legal action and subsequent wage garnishments
- Due to the increased degree of risk, lenders often impose higher credit score requirements for unsecured loans than for secured loans
- Interest rates and terms are also likely to be less favorableespecially for applicants with a weaker credit history
Check Your Credit Score
Borrowers should have a credit score between at least 610 and 640 to qualify for a personal loan, but the most competitive rates are reserved for those with a FICO score of at least 720. Use a free online service to check your credit score before you apply. Not only will this help you anticipate your likelihood of approval, checking your score gives you the opportunity to improve it before you even submit your loan application.
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What Are The Requirements And Documents Needed To Apply For A Personal Loan
The basic requirement you need to meet to be able to access a personal loan is proof of income, a valid identity document, no debts with other financial or banking entities, being of legal age and in many cases being under 65 years old, and other requirements as established by the financial or banking entity.
Home Equity Or Homeowner Loans Borrowing More From Your Mortgage Lender
You may be able to get a further advance on your mortgage you borrow an additional amount of money against your home from your current mortgage lender.
This might be a useful option if youre looking to pay for some major home improvements or to raise a deposit to buy a second home.
Read our guide Increasing your mortgage getting a further advance
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How Do I Qualify For An Unsecured Personal Loan
You must be 18 years old to qualify for an unsecured personal loan and be able to prove US citizenship. Additionally, lenders also look for a steady income, a low debt-to-income ratio and a good credit score. While the median FICO credit score range is 670 to 739, the higher your credit score, the more likely lenders will offer you better loan terms and interest rates.
