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Do you need money to finance a project, but the available resources aren’t enough? It’s something everyone has had to deal with at some point. You’d need money to purchase an apartment, tuition fees, run your business, and many other needs.
If the available funds aren’t sufficient to match your financial demands, requesting a loan is necessary. There are several loans available at your disposal. We’ve discussed some of them in our blog.
This article will provide a complete to unsecured loans, how they work, and how you can go about getting one from certified lenders near you.
What Are Unsecured Loans?
Unsecured loans, also called signature loans, are loans that do not require you to pledge any form of security to claim them. These loans can be secured from banks, certified lenders, and mortgages.
For secured loans, lenders are the ones who are at risk. The reason is that there’s no collateral to secure. The lenders may seek a court judgment to pursue the repayment in such situations.
Lenders would approve your request based on your credit report. Your report shows your credit history, repayment history, debt-to-income ratio, and other factors contributing to your credit score.
How Unsecured Loans Work
When you apply for an unsecured loan, the lender reviews your creditworthiness and other factors such as your income, debts, and savings to ascertain your eligibility. In most cases, you get the chance to see their pre-qualification requirements before making a move to apply for a loan.
You don’t have to submit any asset for your lender to place a lien on during the application phase. The desired loan will be sent to you after a hard check is carried out on your credit and is approved. At the agreed date, you’d have to repay the loan plus interest monthly.
These payments are reported to the 3 major credit bureaus: Experian, TransUnion, and Equifax. However, there’s a grace period for you to report to the bureaus when you’re late on payments.
Secured Loans vs. Unsecured Loans
Secured and unsecured loans serve different purposes. We will look at them below:
- Interest rates. Secured loans are relatively lower due to the collateral available when it comes to interest rates. The interest rates for unsecured loans are considerably higher, as recipients do not pledge any collateral. S
- Approval requirements. The requirements in clinching a secured loan aren’t much. Your credit report and score are the primary criteria used in providing your loan. However, the paperwork involved in receiving an unsecured loan is much. The banks or lenders have no collateral to put a lien on.
- Credit checks. A hard check won’t be necessary for secured loans, as collateral is the only thing considered. Even if they’d be checks, it will be a soft check which doesn’t appear on any credit report or impact a credit score. The lender will conduct a hard check to ascertain creditworthiness for unsecured loans. Hard checks remain on a credit report and impact credit score for a long time.
- Consequences of defaulting payments. When you default on payments in secured loans, the lender can repossess the collateral, and the recipient's credit score will take a hit. In the case of unsecured loans, the missed payments will be forwarded to collections, and the recipient's credit score will be affected.
The distinguishing factor between secured and unsecured loans is that a person with an impressive credit score can apply for a loan without staking collateral. However, if the score isn’t satisfactory enough for an unsecured loan, the person will need to present collateral.
When it comes to which is better, none is. It is essential to review them properly before choosing the one to apply for.
Examples of Unsecured Loans
There are different types of unsecured loans available. They include:
- Student loans. Private and government-backed student loans are generally unsecured. These are loans granted to students to take care of their tuition and accommodation fees.
- Unsecured credit cards. These loans allow borrowers to spend specific amounts of money they can also repay every month. However, secured credit cards are available, but most credit cards do not need you to pledge collateral.
- Personal lines of credit. This line of loans gives you access to funds on an as-needed basis. These loans can be utilized over more extended periods.
- Personal loans. These are the typical loans you apply for from lenders without pledging collateral. Your credit score determines if a lender is going to grant your request.
Steps to Take In Applying for an Unsecured Loan
The following are steps you should take in applying for an unsecured loan:
1. Check your credit score.
Most lenders will want you to have a credit score between 610 and above to qualify for an unsecured loan. However, some lenders can place their eligibility to around 720. You should check your credit to know what you’re up against when applying for these loans.
2. Review your budget.
You need to also review your budget and determine the exact amount you need for your needs. Also, take a look at your debt-to-income ratio before moving ahead to apply for the loan. Some lenders will not approve your request if you do not have a DTI ratio of 36%.
3. Search for lenders.
Bunny Lender is your one-stop destination in looking for certified lenders in your city. All you need to do is input your location and what you need, and you’d see a long list of accredited lenders near you.
4. Gather your documents.
Take a look at each lender's requirements and gather the relevant documents to submit. Some of these documents include your tax returns, bank statements, credit information, income, and other files.
5. Submit and get approved.
After gathering these documents, make a formal request for an unsecured loan. The lender will review your application and documents, and if satisfied, will approve it. These loans can be approved the same day or the next 24 hours.
Final Thoughts
Unsecured loans are what you need if you have an impressive credit score and don’t want to tender collateral. The requirements are straightforward, and the application process is seamless.
Here at Bunny Lender Unsecured Loans, we connect you with hundreds of certified lenders in your city. To get started, type how much you need and your city in the search boxes available, and you will be linked in no time.
