There might come a time in your life when you need a personal loan. You might need to consolidate bills, make home improvements, or take a dream vacation. Whatever the reason, a loan could be the answer you seek. An unsecured personal loan is a loan that is not backed by collateral. No property is used to secure the loan. This article will give you the information you need about personal loans that are unsecured.
Understanding the Unsecured Personal Loan
Lending has a long rich history that extends way back in time. In ancient times, the merchants lent grains to farmers and traders. The Mesopotamians were the first to incorporate interest on loans. Banks began lending to consumers, and with the invention of the internet, online loans are now available. The unsecured personal loan has become very popular in today’s world.
Limits and Amounts
In most cases, the unsecured personal loan ranges from $300-$50,000. Your income level and credit rating will determine how much a lender will give you. The unsecured personal loan is not like a credit card. You cannot have a revolving balance on the loan. The account will be closed once you pay off the card.
Fixed loans have fixed interest rates. Therefore, the rate will stay the same throughout the life of the loan. Most unsecured personal loans have a term that ranges from 3 months to 5 years. The longer your term, the lower your monthly payment will be. It is best to obtain the lowest interest rates possible. Some personal loans have outrageous rates, which will cost you a lot of money.
What Types of Unsecured Personal Loans are There?
If you need a personal loan, you need to know what types of loans are available to you. Some of the types of loans include:
• Installment Loans – With these loans, you borrow a specific amount of money. Then you make payments each month. The terms are usually from 1 to 5 years.
• Payday Loans – These loans are meant to be repaid on the next day you get paid. The interest on these loans is extremely high. You can get an extension on paying the loan. However, it will come with a heavy price. Payday loans are usually for less than $1000.
• Student Loans -These loans help you pay for higher education. The cost of going to college keeps rising. Therefore, you might need a loan to help you pay for college.
• Peer to peer loans – You can borrow from other people rather than a financial institution. These loans have become very popular in recent years. They are fixed rate loans. In some cases, these loans have more lenient credit requirements.
• Line of credit – You can obtain a line of credit, and you can keep borrowing on the loan.
How to Apply for an Unsecured Personal Loan
Before you apply for a personal loan, it is a good idea to check your credit. If you have bad credit, you will not be approved for some personal loans. On the other hand, if you have good credit, you can get lower interest rates. In addition, you need to examine your budget to see how much money you need. You do not want a larger loan than you need.
Before you actually apply for an unsecured loan, you need to research lenders. Unfortunately, many online lenders are dishonest. Check reviews to see what other people are saying about the lender.
You only want to apply with one lender because your credit score will go down each time you apply. You might also want to check with your own bank or credit union. If you are a loyal customer, you might have a better chance of getting approval for a loan.
It is also a good idea to gather all the paperwork that you might need. You will probably need pay stubs. You will need to know your employer’s address and your monthly housing payment. Lenders will ask this question on the application. They will also want to verify your identity. Therefore, you will probably need a driver’s license and your social security card.
When you have all your ducks in a row, you are ready to apply for the loan. In most cases, you can go online to complete this process. However, if you are getting a loan from your bank, you might want to apply in person, so you can speak with a specialist. In some cases, if you apply in person, you can get an approval quicker. Some people prefer to apply over the phone.
It is important to ask questions about anything you do not understand. Find out if there is a penalty for paying off the loan early. Ask how long it will take for you to get the approval. Ask when the money will be in your bank account. Do not agree on the loan unless you understand everything.
After you have applied for the loan, your application goes to underwriting for final approval. If it receives approval, you will receive the paperwork stating the terms and interest rate. It will also tell you how much you will pay each month. Consequently, make sure you look over this very carefully. Do not sign the paperwork unless you feel comfortable with the terms and rates. After you sign and submit the paperwork, you will have the money in your bank account within a day to a week.
Some lenders will approve your unsecured personal loan quicker than others. With some lenders, you will get approval within the hour. However, with other lenders, it might take a few days. You can usually track your progress on the lender’s website.
How Does Repayment Work?
When you get a new loan, they will give you a date when your loan is due. Make sure you pay the loan on time or you could accrue extra charges. Sometimes, a lender will just automatically withdraw the money from your bank account. Also, you might have the option to send in a check or to go online to make a payment. It is a good idea to add some extra money to the payment. This will get the loan paid off quicker. You usually have the option to pay your loan off early. Paying off the loan early will save you money. However, it might lower your credit score.
FAQ We Know You Have
Do I have to accept the loan offer?
After you apply for the loan, you do not have to accept the loan offer.
Is personal loan or credit card better?
Personal loans normally have a better interest rate than a credit card. They are better for larger expenses.
What is an APR?
APR is the annual percentage rate. It is the cost of borrowing each year.
What is an origination fee?
Some lenders charge an origination fee. This is a charge that they normally just deduct from your loan amount.
An unsecured personal loan can give you the money you need to pay for certain expenses. You do not need collateral for these loans. They can help you through a tough time. You can then use the money for whatever you wish.