People who don’t want to pledge any asset for borrowing money always opt for an unsecured personal loan. This kind of loan doesn’t require any collateral, but it’s entirely based on a borrower’s creditworthiness. Since the lender will not hold any security against the loaned amount – he would make sure he studies your credit score carefully to see your capability to repay the borrowed amount.
Good Credit Score is Required
A person interested in this kind of loan must have a good credit score for getting instant loan approval. On the flip side, a person with bad credit finds it hard to get the approval of an unsecured loan from a bank or credit union- through online lenders can be an excellent financial resource for him. High Interest — One main characteristic of an unsecured personal loan is the high-interest rate. As no asset is used as collateral, thereby this loan brings more risk for the lender. Therefore, he always charges a higher interest rate on an unsecured loan than a secured one.
A Revolving Loan
It’s a kind of where the lender sets a credit limit for a borrower. Now the borrower can use this credit limit, pay it back, and use it again. The best example is credit card loans. You get a credit card that comes with your credit limit. You shop through it and pay it back. Your limit resume, and you can spend it again. A personal line of credit is another example of revolving unsecured loans.
Term Loan
In this type of loan, the lender sets a loan term — which could be six months, a year, or more. A borrower gets the full loan amount upon loan approval and can use it. When it comes to the repayment schedule, you need to pay back the loan amount in equal installment within a given period.
Consolidated Loan
Many people apply for an unsecured personal loan in the bank. They need another debt to pay back an existing debt they have, and this approach is known as debt consolidation. A good credit score lets you quickly obtain another loan from the bank to get rid of his existing high-interest loan. While it is advisable to settle your loan without going for another borrowing, it is still a good alternative to not settle an existing loan that will attract huge penalties.
With the right information, you can apply for an unsecured personal loan program that you can easily manage and repay.
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