Are you in need of money to finance an important project or you just need it to clear off unexpected expenses? If you are facing these or any other scenarios, a consumer loan can be a viable option to consider. Consumer loans come in two variations – secured and unsecured. For the secured type, you would need to pledge something of value as collateral. If you don’t have any collateral, you can go for the unsecured one.
Unsecured loans or loans without collateral are credit facilities that you can get without pledging an asset as security. These credits come with less stringent qualification requirements and application processes, and you can usually get them on the same day or within a 24-hours period. When you apply for them, the lender will first check your creditworthiness i.e. your credit score and other important factors like your financial status and debt history.
Although these loans are easy to get, it is important that you meet the qualifications and ensure that you repay on time. Failure to pay unsecured debts at the right time can be disastrous to your credit report. Also, it can negatively impact your ability to access any other credit facility in the future.
So, how can you ensure that you meet the qualifications and get the best or cheapest unsecured loans? To provide you with this answer, we will discuss the steps to take when applying for this credit. First, let’s see the different types of unsecured credit facilities that you can go for, some of the reasons why you might need this loan, and the important documents you will need for it. Let’s begin.
Types of Unsecured Loans
The following are some of the common types available:
Personal Loans
Most of these facilities are unsecured. You can use them for different reasons, ranging from home renovation projects to settling an emergency bill. Some lenders offer specific personal loans, so make sure you confirm the reason you wish to take up the loan with your lender. Doing so helps you avoid any application or repayment issues.
Line of Credit
This is another way to get an unsecured loan. A line of credit allows you to access up to a given amount of money within a specific time-frame. If you want to pay for expenses that will cover a given period, this is a good option to go for.
Credit Cards
These are financial tools in card form that gives you access to an amount of money that you must repay at the end of every month. Although there are secured cards available, if you don’t have collateral, you can go for the unsecured ones.
Student Loans
Both private and government-backed student credit is unsecured. You can get them to fund your college education. The government-backed student loans are usually not open to all students, but the private ones are. You can get them at the banks or private financial firms.
Reasons Why You May Need an Unsecured Loan
Getting credit without collateral depends on your financial situation and the purpose of the money. Here are some of the reasons why you should consider getting one if you don’t have money:
Big Purchase
If you are planning on making a big purchase or a major expense, why not borrow these funds? Waiting to save money for your purchase might take time, so if you want to get what you want on time and you do not have collateral to put up, unsecured credit can help.
Debt Consolidation
Would you like to pay off your current debts on time? Then an unsecured loan is one of your best options. You can get one with better interest rates and terms and make your repayment plan better.
Faster Process
It is easier to get an unsecured debt than a secured one. Although this is mostly dependent on the lender you go for, unsecured loans have stricter requirements than secured ones. If you need money urgently, go for them.
Good Credit Score
If you have a good credit score, you are likely to get some of the best billige lån uten sikkerhet (cheap loans without collateral) available. Though they may usually have higher rates, your good credit score can help you enjoy lower interest rates and better terms.
What Documents do You Need for Unsecured Loans?
Before you apply for these, ensure that you have the following documents and information available:
- Personal identification cards such as your birth certificate, citizenship certificate, driver’s license, state ID card, or social security card.
- Proof of your income, such as your bank statements, tax returns, paystubs, and W-2s.
- Your employer’s information. This includes the firm’s name, your manager’s name, and contact information.
- Residential proof, such as a voter’s registration card, utility bill with your address on it, mortgage statement, and insurance proof.
How to Get an Unsecured Loan
The process to get this is simpler than that of secured ones. Here are some important steps you must take if you want to get the best deal:
Check Your Credit Report
If you want to get the cheapest loan without collateral, you need to ensure that your score is between 670 and above. You can use a free online tool to check what your score is before you apply. Also, you can request a copy of your report from credit reporting bureaus. They will give you this document for free.
Checking this report allows you to improve your credit before applying for any loan. You will take the necessary steps to either increase the score or maintain a good score.
Set a Budget
After checking your score, evaluate your current paycheck and expenses. Even though you don’t have any collateral at risk with this loan, repaying your debt late will affect your credit score. So it is important that you make sure you borrow the exact amount you need and one that will fit your debt payments.
Also, many financial service providers will check your debt-to-income ratio (DTI) before approving your application. This ratio shows how financially capable you are to repay a debt. If you have a high ratio, your loan will not be granted. Make sure you are financially capable to make monthly payments on the debt you take and set a budget for this.
Research for Lenders
Once you are sure that you can repay a debt, the next thing to do is look for lenders with the best interest rates and repayment terms. Thankfully, most lenders offer their borrowers an easy pre-qualification process. This process allows you to know the interest rates, offers available and if you are likely to qualify for the loan. You get to pre-qualify before applying which makes this process very beneficial for new borrowers.
There are different lenders you can go to for this loan without collateral. Some of the options available to you include:
Online Lenders
These are technology-based financial service providers that offer different lending products. They usually offer affordable interest rates when compared to credit unions or commercial banks. They also provide the money within 1 to 2 days of applying. If you are in urgent need of funds, online lenders can be your best option.
Commercial Banks
These are the primary or traditional lenders of unsecured credits. If you have an account with a bank, you can decide to apply for a loan. Most banks are willing to give the best offer to long-time customers. You can leverage this and apply it with them.
Credit Union
These are local organizations that offer loans without collateral online and physically. They require membership, so ensure that you have registered with them before applying.
Get Your Documents Ready
After choosing your preferred lender, it’s time to get the necessary documents ready. Depending on the lender you choose, you will have to submit some important information about yourself. This can include documents like your proof of income, personal identification cards, and residential proof. Providing these documents on time can speed up your application process.
Apply for and Receive the Money
Now, it’s time to fill out the loan application. You can do this online or in person. Many lenders offer online applications because they are easier to access. This makes it possible for approval and disbursement of the approved sum to happen on the same day. In some cases, the funds can be sent in minutes.
Conclusion
If you don’t have any item of value to pledge, you can always go for unsecured credit. By taking note of the steps discussed in detail above, you can take this financial decision with confidence.
