What Are Unsecured Personal Loans?
There are many types of loans available on the market, and here at Loans Now, we not only want to give you a great experience in finding the perfect loan to fit your needs, but also give you a wealth of useful information that you can use to make a confident lending decision.
In simple terms, unsecured loans are an amount of money given to you as a private party to do with as you see fit, barring any special terms outlined in your loan agreement. Unsecured loans do not require any form of collateral in order to secure the loan. Instead, you enter into an agreement to pay back your loan, in full, with the minimum monthly payments, and by the end date specified in your agreement.
What is the Process for Getting an Unsecured Loan?
While the specific timelines vary, in general, there is a pretty standard process that you can expect when you apply for a loan. You can learn about our process by checking out “How it Works” or check out our “Loan Discovery Program” to get the process started.
Speaking generally, most of the time you will start the process by submitting a loan application. This application ask you for contact, personal financial data, and the amount that you want to receive. Your application will be reviewed, and then you will be presented with the terms the lender is willing to extend to you, including the loan amount, the interest rate, the minimum payments, and the end date of the loan’s life cycle. Once you have agreed to these conditions, your loan will be underwritten, the money will be deposited in your account, and your repayment schedule will start to take effect.
At Loans Now, we NEVER:
- collect or share sensitive customer information: SSN, DOB, Address.
- collect up-front payment to process a customer’s loan application / or fund a loan. Loans Now will NEVER ask you to send us money in any form.
Unsecured Personal Loans Vs Other Types of Unsecured Debt
While the majority of loans and other debts are unsecured, there are differences not only in the amount of money that you’re obligated for at any one time, but also the conditions for which you can spend your money. To help clarify things for you, and provide some examples you can reference, the following are three other types of unsecured debt:
Credit Card Charges
Like an unsecured personal loan, a credit card also grants you the ability to make purchases, without requiring a form of collateral. However, there are some very apparent differences you need to be aware of. Unlike a personal loan, which is a type of installment loan, credit cards are a type of revolving credit. Revolving credit means that you are given a credit limit, or a set amount that you can spend in a set period, that renews itself whenever you pay off a portion of the balance.
Another major difference between a loan and a credit card is how interest is applied. With a loan, your interest is applied upfront, and added to the total balance you’ll owe at the start. This means you’ll know exactly how much interest is charged from the very beginning, and you’ll only have to pay it back once. With credit cards, interest is applied towards any outstanding amount left on your card past the payment due date. This can make it difficult to determine exactly how much you’ll owe, if you don’t pay off your full balance at the end of each month.
These are loans that are made between private individuals. While it most often applies in cases of family members or friends, any two private parties can agree to a peer-to-peer loan. While you can normally trust your friends and family to have your interests at heart, peer-to-peer loans can be very risky. They often don’t have any supporting documents attached that specify the terms you both agreed to, including any associated interest rates, or payment due dates.
Student loans work in a very similar way to an unsecured personal loans, but the amounts typically lended out are much higher, you have much longer to pay back the loan, and they can only be used to seek a higher level of education.
Student loans do not require collateral, primarily because lenders understand that most college-aged people don’t have an extensive amount of assets to begin with.
With Unsecured Personal Loans – How Much Can I Borrow?
The answer to this question will vary greatly based on your circumstances, but most of the time, will be based on three factors:
- Your Credit Score
- Your Gross Income
- Recurring Financial Obligations
Your Credit Score
Your credit score will play a huge role in determining not only how much you can borrow, but what interest rate will be applied, and even how long you’ll have to pay back the loan. As a rule of thumb, the higher your credit score, the more favorable your terms will be.
While it’s critical that you know your own credit score before you shop for a loan, the majority of lenders will still make a hard inquiry against your score and report before settling on your terms. A hard inquiry will cause your score to drop by several points. At Loans Now, we never check your credit score beforehand. Instead, we provide you with the resources to check your own credit score, and you tell us what your score is like.
Your Gross Income
This is the total amount, after taxes and other deductions are applied, that you have deposited in your account. While some lenders will take your word on how much you make, others will require that your provide proof, in the form of a pay stub or bank statement, to validate your income.
Recurring Financial Obligations
While what qualifies as a recurring debt can vary from lender to lender, in general, it means any charges that will be for the same amount, and recur every month. Examples include a mortgage payment, car payment, and any other loans you have taken out. Credit card and utility charges most often don’t apply, because the amount you owe can vary from month to month.
Lenders will take what is called your Debt-to-Income Ratio, or DTI, and use that to determine if you could realistically afford to pay back a loan, and under what conditions. In general, if your DTI is at 43% or higher, there will still be options available for you to receive a loan, but the conditions may not be as favorable to you. We encourage you to use our DTI calculator to get a rough estimate of what your DTI is like, before you shop for a loan.
How Can I Improve My Chances of Getting a Better Loan?
No two people’s’ circumstances are exactly alike, but there are some things that everybody can do to improve the terms, conditions, and amounts that are offered to them in a loan.
First – ensure that your credit score is as high as it can possibly be. While there are loans available for people with bad credit, the best lending terms are more often extended to people who have demonstrated that they can manage money and debt responsibly. This does not mean that you have to make a lot of money – there are many people who have phenomenal credit scores without a large income.
Second – settle as many debts as you can prior to taking out a loan. You may very well be taking out a personal loan so that you can pay off some outstanding debts, so you may be limited in what you can afford to do beforehand, but do as much as you can. This may help reduce your overall DTI, and increase the amount you can borrow.
Finally – compare lenders. No two lenders are exactly alike, and each will use different criteria when they evaluate your loan application, and the terms can vary widely. One lender may offer you a large loan, and allow you a long time to pay it back, while another may offer the same amount, with a lower rate, but with a much shorter life cycle.
At Loans Now, we’ve simplified this process to help you ensure that you find the perfect loan to suit your needs. With our Personal Loan Discovery program, you tell us what you’re looking for, what your credit score is, and we’ll help you find the right loan to help you achieve your goals.
What Factors Should I Consider When Shopping for a Lender?
There are many great lenders on the market, and then, there are some shady sorts who are just short of criminal. When you’re comparing lenders, there are many different factors you need to consider. The amount they’re willing to offer you, the interest rate that will be applied to your loan, and how long you’ll have to pay back your debt are all common considerations, but also see if there are any additional fees besides the principal and interest you owe, how long it will take to process your loan, and how long it will take you to receive your money.
What Type of Documentation is Typically Needed?
While the specific information and documentation you need to get a loan will vary by lender, you can always expect that you’ll need to provide the following:
- Proof of ID (in the form of a driver’s license, social security card, or visa). Be prepared to provide two.
- Proof of Income (a monthly bank statement or your last three months of payment stubs).
- Proof of Residency (this could include a utility bill or rental/mortgage agreement).
- Employer Contact Information
- Most recent tax returns (varies, but expect anywhere from one to four years worth).
What Can I use a Personal Loan for?
In general, personal loans can be used for just about any application you want. You can even split the total amount you are loaned between multiple purchases. Some of the most common uses for unsecured loans include:
- Pay off medical bills
- Home renovations or repairs
- Consolidate other debts
- Pay for weddings
- Fund a vacation
There’s a stigma that is often associated with taking out a loan. Many people feel like if they have to resort to using a loan, that they have somehow failed as a person. You need to understand, this isn’t the case at all. As you can see from the examples listed above, these are normal, everyday things that unsecured loans are commonly used to fund. Most of these don’t indicate failure – it’s the simple fact that these are extensive expensive, that most people can’t fund out of pocket.
At Loans Now, we understand that you may feel a degree of shame in applying for a loan, but we’re here to help make the process comfortable and easy for you, and ensure that you find the best loan to achieve what you want in life.
How Can an Unsecured Loan Help Me?
In addition to allowing you to pay for things you may need or want, unsecured personal loans can also lend you some other financial benefits that a charge on a credit card, or putting money aside in savings, cannot.
First – a loan gives you the opportunity to improve your credit score. When you are approved for a loan, the total credit available to you is increased. Since your utilization of credit makes up 30% of your total score, the higher your total limit, the less likely that you’ll use to much credit, and cause your score to drop.
Second – a loan can be a lifesaver for overcoming debt. Normally, people fall into debt because they miss one or two payments, and then have to deal with the compounding interest. There’s also the hassle of managing multiple accounts, with multiple due dates, minimums, and interest rates or late fees to bear in mind. With a personal unsecured loan, there’s only one minimum to worry about, one due date, and one interest rate.
Finally – a loan can allow you to save money in the long run. The best example of this is a vacation, where there may be a special offer you want to take advantage of. Because these offers are often time limited, you may not have all the money you need right now, but you could afford it if you could break it into installments. A personal loan will allow you to enjoy a relaxing getaway, while saving you money, and not having to worry about taking forever to save for due to inflation.
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