Personal unsecured loans have become quite common today. One can get these loans without having to put up any collateral at all. This means that one does not have to own a home or have an asset of value to put up against the loan in case they cannot repay. All one has to do is agree to the terms and conditions of the lender and sign on the dotted line. This is the reason why personal unsecured loans are also known as signature loans. One can get this type of loan from various sources both formal and informal.
To begin with, family and friends can be a great source of a personal unsecured loan. The pros and cons must be considered in this scenario as not paying back as agreed could easily strain or sever long-standing relationships. Another personal unsecured loan to consider is a credit card loan. This is a common type of borrowing in our lives today with the credit limits on the card as well as interest rates varying based on various criteria. The third form of such credit is borrowing from a lending institution. The main criteria looked at when borrowing from the bank is the credit worthiness of the borrower.
The steps needed to access a personal unsecured loan include shopping around for the said loan. The easiest way to do this is to use the internet and where possible obtain free quotes. Another way to do this would be to personally visit various financial institutions and make inquiries. What one should be looking for at this point is the various interest rates, fees, terms and conditions as well as other variables regarding taking out the said loan. After he or she finds a suitable loan, the application process can then begin.
Having put in an application to the lending institution, the borrower is evaluated against the set criteria for personal unsecured loans. This may include looking at the history of the person in paying back other debts that were also unsecured. An example of this could be credit cards as well as other personal loans. They would also look to see if the borrower paid his or her debts on time and if they are employed and for how long. It is important to note that the interest rates of such loans tend to be higher than for secured loans, as the bank tends to bear the risk.
Because the loan is unsecured, the lending institution will usually go to great lengths to make it possible for the borrower to repay. If the person defaults on the personal unsecured loan then the lender has no choice but to report this to the credit reporting bureaus who in turn will reflect this on ones credit score. If the loan was large, then legal action may be taken against the borrower in a bid to force him or her to repay. It is therefore in the best interest of the borrower to repay the loan and avoid a poor credit score in the future.