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Need Help in Securing Unsecured Loans or Personal Loans

Posted on 8th Mar 2014 by Mark Stern
Personal Loans

Unsecured loans, also called personal loans, involve borrowing money without putting up any collateral. Because there is no home or car to repossess if you don’t make your payments, unsecured loans are considerably riskier for banks and lenders. Extra risk means lenders must charge higher interest rates and require higher credit scores.


Unsecured personal loans involve much less paperwork than secured loans like mortgages, but more than products like payday advances. The terms are generally shorter, from two to five years, and loan amounts are usually smaller. Unsecured loans can be used for almost anything — like debt consolidation, college tuition, medical bills or for a trip of a lifetime.


It’s not easy to get approved for a personal loan with bad credit, and the rates for these loans are quite high. However, some lenders might offer you a better deal if you have a co-signer.


Who Should Consider A Personal Loan?

Consumers who need money quickly should consider a personal loan also called an unsecured loan. What makes a personal loan unique is that no collateral is required — the loan is guaranteed only by the borrower’s promise to pay. Unsecured loans might be the only option for people who don’t own homes or have sufficient equity to borrow against their homes. Loan proceeds can be used for almost anything:

  • Debt consolidation
  • College tuition
  • Home Improvements
  • Down payments on property
  • Business expenses
  • Vehicles
  • Travel
  • Health Expenses


Advantages of Unsecured Loans

For those who need money quickly, it can be much faster to apply for a personal loan than to sell assets to get the needed cash — and borrowers can always sell their assets later and use the proceeds to pay off the personal loan. If the choices are withdrawing from a retirement account (racking up taxes and penalties) or applying for a personal loan, the personal loan is likely to be the cheaper alternative. Unlike credit cards, personal loans come with lower interest rates in most cases and there is no “default rate” for being late with a payment. If the consumer experiences a financial disaster at a later date, the loan can be discharged in a consumer proposal or bankruptcy, unlike secured loans or government-backed student loans (like OSAP).


How to Apply for a Personal Loan

Because an unsecured loan is not backed by anything other than the borrower’s promise to repay, an applicant’s credit history and scores are very important. Applicants for personal loans must complete an application, authorize a credit check, and provide documentation showing that they have sufficient income to repay the new loan — usually pay stubs and T4s, or tax returns for the self-employed (including Notice of Assessment and T1 Generals for the past 2 years). Underwriting is completed by automated systems and human underwriters, and the applicant is notified in writing of the decision to approve or decline the loan. In many cases, consumers can apply online and have the money transferred directly into their bank accounts without leaving their homes.


Borrower Beware!

One requirement of most unsecured lenders is good credit — applicants with a history of missed payments, collections and charge-offs aren’t the most promising candidates for unsecured financing. There are reputable providers of personal unsecured loans online for people with credit scores under 620, and other lenders are sometimes willing to fund personal loans to sub-prime applicants if they have a cosigner.


However, the Internet is also full of shady firms ready to exploit desperate people. Those seeking an unsecured personal loan should watch out for lenders advertising personal loans for bad credit or unsecured loans with no credit check — these are not really personal loans. Unsecured loans have no collateral, but these loans are secured by a post-dated check or an auto title. They are really payday loans, check advance loans or title loans — with very short terms and very high interest rates.


Personal Loan Interest Rates and Terms

Unsecured loans are normally available with terms ranging from two to five and even upto 10 years. The borrower receives a lump sum and repays the loan with equal monthly installments. Interest rates are usually bank prime plus 2 or 3 percent. However, there are also revolving lines of credit, which function like credit cards. Borrowers set them up and draw on them as needed, paying interest only on the amounts used. The monthly payment is based on the loan balance and interest rate, which is variable.

In 2014, rates for personal loans range from 6-9 percent.

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