What is an unsecured loan?
An unsecured loan would do nothing for you but land you into trouble as you could keep on paying more interest than is your due for it. If you know what is a personal loan then a personal loan and an unsecured loan are the same things. The nomenclature is just different on the part of the providers. When you take an unsecured loan then you don’t have to provide any security against it for example your home, car or whatever.
The loan will be provided to you by the lender on your previous credit history. This procedure will take place through a credit check that will determine your credit rating. A signature loan as an unsecured loan can be called is a collateral loan where the borrower signs documents attesting that the loan will be returned within the set time period.
The simplest example of a signature loan can be a loan from a friend or family member and should well be taken into consideration. If large amounts of money remain unpaid then it can become detrimental for the relationships.
The only recourse to such loans remaining unpaid is small claims court.
Well also another exceedingly common type of unsecured loan is any purchases made on a credit card. The signatures that are taken at then time of any payment being made through a credit card is an agreement by the card holder to make the payment at a future date. The terms and size of the loan are predetermined in the case of a credit card, what you know as your credit limit.
The obtaining of a credit card certifies that you agree to the terms that the company sets. Apart from that if the amount is not returned on the due date then a late fee fine is also put. This loan is no collateral loan and the company only sees your repayment ability through your credit rating and trusts your promise to repay the money. Legal proceedings can also be undertaken against the borrower.
If the borrower’s financial condition has worsened so he can claim bankruptcy and the retrieval proceedings can stop. However this act can but a serious question mark on the creditability of the borrower and he will be unable to get unsecured loans in the future from banks etc.
It is not as if only companies give unsecured loans but banks also do that after assessing the credit worthiness of the borrower. Those with less credit rank if they get unsecured loans will then be given to them at a higher interest rate. This is because the lender is taking a risk that is higher.
Generally the amount of the unsecured loan is small maybe something like a medical fee or the cost of a vacation etc. If you have high creditworthiness then you can always seek the best interest rate for yourself. This you are mostly wont to get through credit unions. If you have an account with a credit union then getting an unsecured loan will not be much of a problem.