Say you need a sum of cash, and fast. Maybe you have some urgent household repairs to make, or you need to have a medical procedure that will require you laying out some cash ahead of time. It’s alright. You can get a loan. No problem, right? Maybe not. It can be a little more complicated to get a loan than you may have thought, and it might even seem impossible if you don’t have the right information.
It doesn’t have to be so hard, though. Here at Loans Now, we’ll help you learn about loans and what it takes to qualify for a personal unsecured loan or collateralized loan so you can get the cash you need now.
Personal Unsecured Loans VS Secured Loans
The first thing you need to understand when you’re looking at a personal loan is the difference between these two major types of personal loans. Which type is best for you will depend upon several factors. We’ll explain a little about each of these types of loans, including some factors that may help you determine which might be best for you.
Collateralized Personal Loan
This type of loan leverages something you have of monetary value, also known as collateral, to give you access to cash. In more basic terms, the bank agrees to give you a loan, but they do so with the understanding that they will take your collateral into their possession if you can’t or don’t pay back the loan per the agreement. You may hear this type of loan referred to as a secured loan or a collateralized loan.
Because the bank has a way to get their money back regardless of whether you pay back the loan, this type of loan is easier to get than a personal unsecured loan. However, it also means that whatever property you put up for collateral is at risk if something happens that makes repayment of the loan difficult or even impossible.
Personal Unsecured Loan
With a personal unsecured loan, also known as signature loans or uncollateralized loans, the bank is taking on a lot more risk. They are giving a loan with little assurance other than the borrower’s word that they will get their money back without a fight. Because of the increased risk, these types of loans tend to be tougher to get approved for. You’ll also likely pay a higher interest rate with a personal unsecured loan than you would a collateralized loan to account for the additional risk the bank is taking on.
What Does It Take to Get an Uncollateralized Loan or Personal Unsecured Loans?
Understanding Creditworthiness
Anytime you’re considering borrowing money, whether it’s in the form of a credit card, personal unsecured loans, or buying a house, it’s important that you understand what makes you creditworthy (or unworthy) to potential lenders.
Most lenders will use a credit score assigned to you by one or more of the top three credit reporting agencies, TransUnion, Equifax, and Experian. The majority of lenders use your FICO score. Your credit score is a numerical value that is given based on your credit report. Your credit report contains information about your current and past accounts, total debts owed, payment history, and other pertinent information like if you’ve filed for bankruptcy. Credit scores above 800 are considered excellent, scores 750 and 800 are very good, scores between 700 and 750 are good, scores between 650 and 700 are fair, scores between 600 and 650 are bad, and scores below 600 are very bad.
Knowing what causes your score to rise and fall is the first step in making sure that you have the best chance possible of getting favorable chances on a loan.
Checking Your Credit
It’s a good idea to check your credit before you apply for a loan. Knowing your score will help you determine what type of loan you might qualify for, what kind of loan terms you can expect (length, interest rate), and which loan offering is best for you.
Calculating Your Debt-to-Income Ratio
Your debt-to-income ratio plays a big part in many lenders’ decision on whether to lend you money. While this does play into your credit score somewhat, your debt-to-income ratio on its own can make or break or your chances of getting the loan you so desire, so you may consider calculating your DTI before you apply for a loan while you’re checking your credit score.
Applying for Personal Unsecured Loans
Once you’ve checked out your credit score and your debt-to-income ratio, the next step on the road to getting a loan is actually applying for one. You’ll want to do your research and determine what kind of loan you might qualify for before jumping in head first because being turned down for a loan can hurt your credit score, making it even harder to get a good loan that suits your needs.
Next, you’ll want to gather together all the documents needed. While there’s generally less paperwork and documentation when applying for a personal unsecured loan than there is with, say, a mortgage, getting all the paperwork together can still take some time. You may need to show the lender proof of expenses, income, and employment. The lender basically takes it from there!
Getting a Loan with Bad Credit
Having bad credit doesn’t mean it will be completely impossible to get an uncollateralized loan. There are plenty of companies out there who are still willing to take on the risk of lending to people with low credit ratings. It does mean, however, that loan terms may not be as favorable as if you had a better credit rating.
The Final Word on Getting a Personal Unsecured Loans
Researching loans that might be good for you can be a tedious, confusing process. Each lender has different minimum qualifications for each loan they offer, and there are a lot of loans to sift through. Loans Now Discovery can help take the hassle out of loan shopping, all while keeping your credit score intact. They don’t share your information, and they can help you find the loan that’s right for you, free of charge.