There are some times in life where you have to meet certain unexpected financial obligations in life and the only option you have is to take out a loan. Loans are good in that they give you access to money that you did not have so that you can pay it back over a given period of time. In most cases, people have to give their assets such as a home or a car as collateral. Well, that is at least the case with secured loans. When it comes to unsecured loans, you don’t have to give any assets as collateral. Below, let us take a look at what unsecured loans are.
What is an unsecured loan?
Blancolån are also known by the name good faith loans or signature loans. In this kind of loans, the borrower doesn’t have to pledge collateral as indicated in the introduction of this article. The loan is extended to the borrower by the lender upon application. There are several types of unsecured loans in existence, but the most common ones are unsecured credit cards, student loans, and personal loans. These loans are available from a number of sources, including government-backed lenders, traditional lenders, and online lenders among others.
The first characteristic of these types of loans is that they do not involve a rigorous application process like is the case secured loans. Lenders usually expose themselves to a higher risk by extending these kinds of loans. To minimize the risk involved, lenders usually require borrowers to have a higher credit score in order to qualify.
The terms of the loans are also much less favorable and the interest rates are also higher when compared to those of secured loans.
How unsecured loans work
Unsecured loans are usually issued to borrowers so that they can use them for a wide range of purposes. The duration of the loan usually varies from one lender to another, but will typically run from between one year to seven years or more. The interest rate, amount extended, permitted users, and the conditions of the loan will usually depend on the lender.
Because of the harsher terms associated with unsecured loans, borrowers are advised to shop around before they settle to borrow a given lender. In some countries, lenders usually offer these services online, including the decision regarding the loan. The borrower has to access the lender’s website and check the terms applicable and then place their application. The borrower can also check online if they meet all the qualification requirements.
What happens if you default on an unsecured loan?
When a borrower fails to pay back the amount of money borrowed in loan, the lender usually sends their details to a collection agency. The collection agency will therefore take over the collection process from the lender and make contact with the borrower as necessary. If the borrower doesn’t pay even after being called by the collection agency, the lender can take legal action to try and recoup the amount owed.