A candid look at different types of unsecured loans
Let’s face it. To an individual who owns no property and has been denied a loan several times because they have a poor credit rating, the term “unsecured” followed by a “loan” is sweet music to their ears. They say it’s only when you can’t get access to the simplest of things that you begin to appreciate how integral they are in your life. Well, being denied a loan especially when you badly need it is an experience one wouldn’t wish even to their worst enemy. Think of this scenario - Your kid has just fallen ill, admitted and money is needed for an emergency operation.
Your car has just broken down yet your payday is 2 weeks away. Your roof is leaking and you need cash in the shortest time possible to fix it. All these scenarios require that you have cash at hand. So what happens when you don’t have cash on you? The logical thing is to apply for a short term loan. Well, this sounds easy until your lender requests that you have collateral (which you don’t) and a good credit history (which is probably a long shot in your circumstance). Your head is spinning, you can’t think straight and you feel as if the world has conspired to lock you into a mechanical mode of reaction impossible to resist.
This is something that most people without property to set up as collateral experience on a regular basis. They feel dejected, worthless and as if they are second class citizens. Fortunately, unsecured loans have come to the rescue of these class of people. Simply put, unsecured loans refer to a loan where you don’t need security to be considered. In other words, you can rely on your credit worthiness to get approved for a loan. Other than the popular payday loans, there are indeed many different types of unsecured loans. Let’s take a look at a few of them. Shall we?
You probably have that look on your face like “how are credit cards unsecured loans?” Well, to the uninitiated, credit cards are considered unsecured loans owing to the fact that you borrow money from a credit card company, go for trips, make purchases and repay the money you have used at a later date. Get the drift now? Lovely!
Peer to peer loans
One of the most popular unsecured loans in the contemporary society, peer to peer loans work in the sense that lenders and borrowers rely on individuals to make a decision rather than on businesses. The mushrooming of sites allowing for borrowers to post loan requests and prospective lenders deciding whether to grant them or not is one of the reasons peer to peer loans have become quite popular. The only downside is that though the credit score of the borrower isn’t much of a factor, the interest rates for peer to peer loans are quite high!
Yes. I know what you are probably thinking but to cut to the chase, student loans are also considered unsecured loans. In fact, prior credit history is not a determinant as to who qualifies for this loan or not. However, most of them have a timeline or rather grace period after which the borrower will have to start repaying the loan.
As the name implies, these are loans that are basically secured by a person’s signature. All you need is to make a promise and sign that you will repay the business or individual advancing you cash at a later date. The thing about signature loans is that lenders award it in instalments and the fact that they generally offer lower interest rates compared to other types of unsecured loans make them attractive especially to first time borrowers.
That said, other common types of unsecured loans include small business loans, line of credit, cash advance just to mention but a few.