You have probably heard of unsecured personal loans, and how you can use these for a variety of purposes such as consolidating your debts, paying off emergency expenses or funding your startup business. However, before you begin taking out this type of loan, it is important to know what to expect from it and determines any possible alternatives available.
Overview on Unsecured Personal Loans
Unsecured loans do not require you to have any collateral that will guarantee the loan. This means your lender does not have any rights to collect a specific property that you own in case you fail to repay the loaned amount. As a result, an unsecured loan becomes minimally risky for you since there are no immediate consequences when you default on your loan payments.
As for lenders, they assume more risks with this loan type. There are no properties to sell or collect if you refuse to pay the loan off, although lenders can always take legal actions against borrowers to pursue loan repayment. Since lenders face higher risks, it is only typical for them to charge much higher rates than what are normally offered for secured loans.
Tips for Applying for Unsecured Personal Loans
It is not entirely impossible to obtain unsecured loans when you have less-than-perfect credit, yet you will have to experience a tougher time getting your loan application approved. After all, your credit is a key factor that determines your chances of getting this type of loan. With a good credit, you increase your chances of paying lower rates. There are also more options for loan terms available for you.
So, if you have poor credit, you may either postpone your decision of taking out a loan until you have improved your credit rating, or you may explore another option such as finding a co-signer to help you.
A co-signer is someone who has a good credit rating, and it is important that the person has sufficient income to settle the loan. Furthermore, co-signers apply for the unsecured loan with you, and they are tasked to repay the amount loaned if you fail to do so.
Although having a co-signer helps you qualify for a loan, you should realize that having one can be quite risky. Co-signers will not be able to take out a loan for themselves since they are solely responsible for your personal loan. So, you need to settle your debts before they can apply for a mortgage to buy a home or car, for instance. What’s more, they run the risk of paying off your debt if you are unable to settle it. Should anything unfortunate happens to you whether it is an injury or unemployment, the lender will chase after your co-signer to pay off your outstanding loan balance. What’s worse, co-signers are putting their credit rating on the line if they have no means of settling your loan.
If you are seriously considering taking out this type of loan, make it a point to understand carefully what you are getting into. This way, you can avoid any hassles and legal issues that can cause you even greater financial concerns.