Unsecured Personal Loan

Unsecured personal Loans create an opportunity for borrowing cash without any collateral to support the loan.  They are also referred to as “signature” loans; meaning they require only a signature to receive borrowed money.  Depending on the lender, unsecured personal loans can require less documentation, take less time, and possibly have no formal closing.  Usually there is an application, a promissory note and maybe a payment schedule. 

Basic unsecured personal loans can be for high or low amounts.  Banks and other financial institutions offer these loans for home remodeling, weddings, consolidation of debt, or extra cash on hand.  The entire loan amount is given up front in either check form or a deposit into an existing account.  Often there is no penalty for paying off the loan early.  These loans are also ideal for borrowers in an emergency situation that need extra cash unexpectedly.  Occasionally the lender may require the borrower to state the purpose of the loan.

Applying for a loan can sometimes be done from home.  Some banks, credit unions, and loan institutions offer applications online or over the phone.  This makes them much more accessible to certain members of the public; particularly those who have a hard time getting around or those who do not want to stand in line.  Some lenders also offer a discount to those who sign up for automatic payments on the loan.  Lenders that have an existing relationship with the borrower (i.e. a checking or savings account) may be more lenient with the loan requirements or lend more money. 

Terms and conditions of unsecured personal loans vary by the lender.  Things like higher interest rates can sometimes be negotiated based on the credit score of the borrower.  Interest rates do vary, however, and include fixed and variable rates.  If a lower interest rate is desired, the borrower may have to meet more rigid qualifications.  A stable financial situation is usually required and monthly income is generally a factor.  The borrower must be able to make monthly payments in addition to other bills and expenses.  This should be kept in mind if a loan is being considered.  Stretching a month too thin can make more loans necessary and in turn create more expenses.
Unsecured personal loans include loans such as “instant cash” loans and “payday” loans.  These loans are offered for quick cash and sometimes carry a shorter time frame for payback.  They also carry higher interest rates and occasionally limit how much can be borrowed.  These “quick cash” unsecured personal loans usually have repayment in the form of a post-dated check or an automatic withdrawal from a bank account.  These types of unsecured personal loans can end up costing the borrower more money.  If they are used frequently, the borrower should re-evaluate their financial situation.

Since unsecured personal loans do not give the lender collateral, the lender must take legal action should the borrower default.  In the course of a lawsuit the lender may be awarded some form of personal property or garnishment of wages.  Awards in these types of situations vary by state and can limit how the lender recoups their loss.  This, in turn, creates a situation where it is not uncommon for guidelines to be stricter than with collateral loans.

Unsecured personal loans are becoming increasingly more common today.  As the economy slows, paychecks aren’t stretching as far as they could.  The public in general are in need of more money to cover basic expenses.  These loans can be advantageous for a short-term fix, but should be used carefully for a long-term need.