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It is no secret that applications for unsecured loans are less successful than those for secured loans. Logic alone dictates that this should be the case, since the security provided by collateral makes lenders more comfortable in approving secured loans, even when the applicant has a poor credit rating.
However, it is not true that it is next to impossible to get lenders to approve loans that are unsecured. Rather than being an urban legend, it is actually a reality that provides a real solution to a financial quagmire that many people have found themselves stuck in.
After all, given the economic strains that the country is dealing with today, there can be little debate that even those with low credit ratings need a financial break. And with the vast majority of people in financial trouble having little in terms of collateral, the most practical role for lenders is to issue loans approved without security.
Of course, the reality of the situation needs to be made clear to everyone before confidence in getting such a break can grow. There is a short list of typical issues that all applicants face.
Loan Availability
It is not particularly difficult to find a lender that is willing to approve unsecured loans. However, the challenge is in finding one that offers such loans to people with poor credit ratings on competitive terms. With good credit history, loans as large as $20,000 are available without need of any collateral.
Getting around this issue is possible if an applicant with a bad credit score can find a cosigner to play the role of guarantor. This allows the lender the peace of mind that, should the applicant be unable to pay, the cosigner can.
Generally, this is enough to get loans approved without security, but there are still issues with the size of a loan that is unsecured, with perhaps the limit falling to $10,000.
Repayment Schedule
A significant aspect of every unsecured loan application is the particular schedule of repayments. This is also closely linked to interest rates, as a longer term loan can mean the interest paid over the loan lifetime will be very high.
Basically, loans that are unsecured stand a better chance of being approved if they are for a small amount of money repaid over a short period of time. This is because the total loan will require less monthly repayments. This also provides the borrower with a chance to improve their credit rating in the quickest possible time.
The alternative is to repay loans approved without security over a long term, for perhaps as much as 72 months. This suits when repaying loans of a larger sum where, with the principal spread over such a long period, the monthly repayments are low, making it more manageable.
The Risks Involved
Even with what seems the best deal, an unsecured loan carries with it real risks. There is a commitment expected to meet the repayment schedule without any hindrance, and this alone can become an issue, unless a consigner is there to help out.
Lenders view loans that are unsecured as being more risky, so are quite alert abut repayments, and this should be kept on mind. Of course, with short term loans approved without security, the interest rates can be high, making the monthly payment potentially quite difficult to manage.
In the case of a long term unsecured loan, while the payments are lower, the amount paid in interest over the duration is much higher. However, the key is to ensure the payments are maintained.
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