Three types of Unsecured Loans
If you run out of funds and you do not have any choice but to borrow money and do not have any collateral of significance then your only choice would be unsecured loans. These loans could be for anything from educational loans, home renovation, small businesses, medical emergencies, to emergency financial crisis. Unsecured loans can be found in banks, lending firms, and certain money lenders. When you do not have any collateral your cost to borrow will tend to be a little higher as there is more risk. How much the interest rate is will depend on your credit and the type of lender and loan you qualify for.
You don’t need collateral when you applied for these certain kind of loans. The lenders don’t require any security at all. These kinds of loans are riskier to the lender since they only rely on your character and your capability to pay.
Three kinds of Unsecured Loans
Here are three kinds of unsecured loans
- Personal Unsecured Loan – this type of loan is granted to an individual with the individuals’ character as the guarantee. The borrower doesn’t need to have something of value to back up his/her loan. The borrower is solely responsible for the repayment of his loan.
- Unsecured Business Loan- this loan is being granted to a business entity. The business is solely responsible for paying back the loan. This type of loan is riskier on the part of the lender since there is no collateral in case the business will not do well and will no longer have the capacity to pay.
- Unsecured Business Loan with a Personal Guarantee- This type of loan is granted to a business entity just like the second type. The difference is that there is a personal guarantor who will be asked to pay in case the unsecured business loan will be in default. Although this is also risky, but this type of loan is less risky compared to the first two. Since there would be two that would be responsible in paying the loan in case the loan is already due.
With unsecured loans be it a personal unsecured loan or an unsecured business loan the lender is stricter with its underwriting guidelines and policies. The lender would verify your past credit history and your credit rating… The lender finds it very important that you have a good credit history since these types of loans do not ask for collateral. This way they would be able to gauge your ability and capacity to pay. If the lender thinks that approving your loan is such a high risk then they may disapprove your loan application. If this happens there are some other options available for unsecured loans when you have bad credit, see more on cash advance loans.