Unsecured Personal Loans
An unsecured personal loan is money provided by one party with-out any collateral to secure its repayment. In most cases, these types of loans are considered somewhat high-risk since the lender usually does not have a way to force the borrower to comply with the conditions or to make payments in a period not exceeding the lawsuit. Therefore, many unsecured loans have high interest rates and are often available only to those who have a good credit history.
Reasons for getting a loan
Unsecured personal loans are often required for small short-term expenses, such as medical crises, weddings, or funeral expenses. As a rule, they must be returned within about a year, but the conditions may vary, it all depends on the amount of debt and the relationship of the borrower and the lender. When borrowers do not have much valuable property, applying for an unsecured loan may be the only option to get the necessary funds.
Simplicity is another reason to get an unsecured loan. When it comes to small amounts of money, usually there are no problems for establishing collateral relations. A simple contract can often be the best way to describe all the nuances of a loan, even if there are other compromises.
Features of an unsecured personal loan
The features of an unsecured personal loan include the following:
- Terms are always less favorable than those for a secured loan: the repayment period is shorter and the interest is higher;
- A potential borrower must provide a proof of income. Some institutions may approve a loan without such a certificate, but the interest will be so high that such a loan would be unprofitable for the borrower;
- The amount of an unsecured loan is limited – the borrower will not be able to get a lot of money;
- It is impossible to get a loan without registration. At the same time, financial institutions are actively lending to citizens with temporary residence permits and stateless persons but only for a period not exceeding the validity period of temporary registration;
- It is also impossible to get an unsecured loan if you have a bad credit history. If you have at least one delay, the bank will probably reject your application;
- The bank may oblige the borrower to purchase an insurance policy.
Benefits for borrowers
The main advantage of an unsecured personal loan is the speed of processing: it will take a maximum of 3 days to get the funds. Mortgage loan approval requires more time since there is a need to assess the collateral. Another advantage is the ability to use the money at your own discretion.
The main disadvantage is the high interest rates – the borrower is able to reduce it by using guarantee. A guarantee can be a relative or friend (or several people) who have a stable income and a good credit history.