You may apply for unsecured loans to pay for your other debts, pay for travel expenses or to start a new business. Of course, before applying for an unsecured loan, you have to know and understand first what unsecured loans mean.
Understanding the Basics: No Collaterals
For unsecured loans, borrowers do not have to surrender their home or car ownership as their collateral just to get their loan approved. For loans that require collateral, the lender will have the right to sell your car or your home which you surrender as collateral in the event that you are no longer able to pay for your loan. Once your collateral property was sold, the bank or the lending company will now collect the amount from the sales proceeds so that your loan will be declared as paid. For unsecured loans wherein collaterals are not required, it will prove to be risky not just for the borrower but for the lender as well. This is because with unsecured loans, no specific agreements are signed that will tell what will happen to your loan if you fail to pay it. The lenders will also have nothing to sell in case you are not able to repay the loan to them. The consequences will not be as immediate and certain, thus the term “unsecured”. Many people who were unable to pay their unsecured loans find themselves receiving legal actions from the lending company.
Higher Interest Rates
Since unsecured loans don’t require collaterals, it usually warrants a higher interest rate. Your credit score largely dictates your chances of being approved for unsecured loans. The same can also be true if you apply for online loans Australia. Having a good credit score would mean you are more likely to get approved for a loan with a lower interest rate. For individuals with bad credit score, they may not have a lot of options. People with bad credit score may also need a co-signer to increase their chances of being approved.
Different Types of Unsecured Loans: Signature Loans
Signature loans are the type of unsecured loans that help you obtain the loan by just using your signature. Since you will not be asked for collateral, you will have to sign a document expressing your promise to pay. The money obtained from unsecured loans can be spent on practically anything depending on your needs or preferences. A signature loan is also referred to as an installment loan that will amortize over a period of time. One advantage of signature loans is that it can also be used to help you build your credit. This way, applying for loans will become easier and with a lower interest rate in the future.
Credit Card Loans
This is another type of unsecured loan that is very common these days. With credit card loans, you may not be able to get a lump-sum amount of the loan. But, it allows you to borrow anytime and anywhere you wish to use your credit card. However, you have to see to it that each time you borrow, you are not going beyond what you credit card limit requires. What makes credit card loans so popular is the fact that people can just borrow in an instant, anytime.
There are many other types of unsecured loans that you can possibly apply for. Check the internet to see other options that may perfectly match your preferences, needs, and financial capacity.