2018 Guide To Online Unsecured Loans
An online unsecured loan refers to a loan that has not been “secured” by any means of collateral. For example, with a collateralized loan you may put up your car title or home as “collateral” in order to secure the loan. With an unsecured loan, there is nothing to “seize” in the event of failed repayment.
Unsecured loans, whether applied for in person or online, are approved and based solely on your “promise” of repayment and the respective lender’s confidence in your ability to do so.
There are a few types of online unsecured loans:
- Credit cards (while not often considered “loans” they certainly fall under this category
- Student loans
- Personal loans
Can You Get Approved For An Unsecured Loan With A Bad Credit Score?
Key commonalities that all online unsecured loans have:
The nice thing about these loans is that you don’t need any type of collateral to take out the financing. Other types of financing normally require you to “put up” collateral such as the deed to a car, boat, motorcycle or other item of value. In the event that the borrower fails to repay the loan, the lender would seize the collateral as an asset that will be sold in order to recoup their loss on the loan.
Unsecured financing is a much higher risk for the lender, because there is no quick remedy in order to get their money back in the event of non-payment by the borrower. This is why unsecured loans are typically issued for lower amounts (often up to $1000-$5000 maximum), and at higher interest rates than traditional secured loans.
- Shorter term
These loans are typically of a shorter duration, given that longer periods of time equates to higher risk levels for the lender. Re-payment can begin as early as within one week, or as late as thirty days from the issue date of the loan. Similar to installment loans, re-payment is made via “installment payments” over time.
- Limited Amount of Funding
Because these online loans are both unsecured and shorter term, they carry a larger amount of risk for the lender, and as such, the amount a lender is willing to finance is typically lower than with a “secured” loan. These types of solutions are meant to help provide individuals handle immediate financial needs, while at the same time being manageable enough to pay back in a shorter period of time.
Approval for Online Unsecured Loans
Because no collateral is used, the lender’s primary means of deciding your loan terms and approval or denial will be based on their perception of your ability to repay.
- Your Credit
Lenders will validate your re-payment history and credit score. For these types of loans, good credit is almost a must in today’s economy.
Lenders need to know you have an adequate source of income to actually re-pay the online loan. They will typically ask for proof in the form of W2s, bank statements and tax returns.
Why Would I Want to Take Out an Online Unsecured Loan?
While some carry higher interest rates, and thus may come off as “undesirable” at first, it is important to remember that these are designed to be “shorter term” and are not unlike a credit card in the sense that they may be used to cover immediate financial shortfalls. It is also good to remember that the lender is taking a big risk in giving you funding that is unsecured (meaning you are not putting up anything like a car title for collateral).
In fact, these types of financing options provide a large number of Americans with what is often the only option they have to overcome sudden and unexpected financial difficulties.
Here are a few reasons that people use online unsecured loans:
- For unexpected medical bills or expenses
- To avoid the embarrassment of having to borrow from friends and family
- To help pay for rent, utilities or other necessities
- To avoid having to cut back on normal everyday living expenses
- To pay for unexpected auto/car repairs needed to get to work