Unsecured loans, also known as unsecured personal loans, allow borrowers to access funds without risking their assets. As per Q4 of 2022, an astounding 22.5 million consumers have at least one unsecured personal loan — a 12.9% increase from the previous year. Unsecured personal loan balances reached a record high of $222 billion in Q4 2022. Let’s explore how to get an unsecured loan. Get personalized loan options on the Beem app, without worrying about credit score and income restrictions.
What is an Unsecured Loan?
An unsecured loan is a loan that does not require collateral as security. Unlike secured loans backed by assets such as a home, car, or savings account, unsecured loans are solely based on the borrower’s creditworthiness.
Based on the most recent industry data, approximately 22.5 million individuals in the United States possess a combined personal loan debt of $222 billion. Lenders evaluate factors such as credit score, income, and employment history to determine the borrower’s ability to repay the Loan. Unsecured personal loans come in various forms, including personal lines of credit, personal installment, and credit card loans.
Secured vs. Unsecured Loan: Which is Better?
Secured loans have lower interest rates because collateral is provided, which decreases the lender’s risk. However, unsecured loans have advantages, making them a better choice in certain situations. Here are some key differences to consider:
- Collateral Requirement: Secured loans necessitate collateral, which could be seized by the lender in case of default. On the other hand, no collateral is required in unsecured loans, meaning borrowers don’t risk losing their assets.
- Credit Requirements: Secured loans are relatively easier to obtain with poor credit, as collateral mitigates the risk for lenders. Unsecured loans, especially online unsecured loans, may require a higher credit score for approval.
- Loan Amounts: Secured loans usually offer higher loan amounts since valuable assets back them. Unsecured loans typically have lower loan limits due to the absence of collateral.
- Approval Process: Secured loans may involve a lengthier approval process, as lenders need to evaluate the value of the collateral. Unsecured loans often have quicker approval times, making them suitable for urgent financial needs.
- Interest Rates: While secured loans offer lower interest rates, unsecured loan interest rates can be higher due to the lack of collateral. However, a strong credit score can help ensure competitive rates.
How to Get an Unsecured Loan
- Check Your Credit Score: Check your credit score and credit report. A good credit score increases your chances of qualifying for an unsecured personal loan with favorable terms. If your credit score needs improvement, enhance it before applying for a loan. The Beem Credit Score Simulator is a valuable tool to help you plan your credit, including loans and cards, better.
- Research Lenders: Explore various lenders, including traditional banks, online lenders, credit unions, etc., to find the best unsecured loan options. Each lender has different criteria and interest rates, so compare multiple offers to secure the most favorable terms.
- Gather Necessary Documents: Prepare the required documents, such as proof of income, identification, and bank statements. Lenders may also request previous tax returns and employment verification.
- Consider a Co-Signer: In case you have a low credit score or limited credit history, having a co-signer with a solid credit profile can increase your chances of loan approval. Remember that the co-signer would be equally responsible for loan repayment.
- Submit Loan Application: Complete the loan application with accurate information and submit it to your lender. Many online lenders offer convenient digital application processes that expedite the approval time.
- Review Loan Terms: Once approved, carefully review the loan terms, including the interest rate, loan amount, repayment period, and associated fees. Ensure that you read and understand the terms before accepting the Loan.
- Repay the Loan Responsibly: After securing the unsecured loan, make timely repayments to maintain a positive credit history. Responsible loan repayment can and will improve your credit score and increase your borrowing opportunities in the future.
Best Ways to Use an Unsecured Loan
- Debt Consolidation: Consider using an unsecured personal loan to consolidate high-interest debts, such as credit card balances and medical bills. This can simplify your finances and save money on interest payments.
- Home Improvements: Funding home improvement projects with an unsecured loan can enhance your living space and increase the value of your property. Ensure that the improvements add long-term value and are within your budget.
- Education Expenses: An unsecured loan can help cover education expenses, such as textbooks, tuition fees, and student living costs. However, consider federal student loans and scholarships first, as they often have lower interest rates.
- Emergency Expenses: In case of unexpected emergencies, such as medical bills or urgent car repairs, an unsecured loan can provide quick financial relief. Ensure that you borrow what you need and have a repayment plan.
Also know about: How to Get an Unsecured Loan ?
Conclusion
Obtaining an unsecured loan is an accessible and flexible financial option for those not wishing to offer collateral. By educating yourself about the process and evaluating your creditworthiness, you can understand how to get an unsecured loan and get one that suits your needs and financial goals.
Remember to research lenders, compare loan offers, and use the funds responsibly. Whether you choose to consolidate debt, embark on a home improvement project, or cover emergency expenses, an unsecured loan can be a valuable tool in achieving your financial objectives. Beem will help you in finding the best personal loan offers for your needs. Compare between different options and see what works for you.
FAQs
1. How to Get an Unsecured Loan With Bad Credit?
While securing such a loan with bad credit may be challenging, it is not impossible. Consider applying with online lenders who may have more lenient credit requirements. Alternatively, having a co-signer with a strong credit history can increase your chances of approval.
2. What Is the Difference Between Unsecured and Secured Loans?
The main difference between an unsecured and a secured loan is the presence of collateral. To obtain a fast loan, it is necessary to provide collateral security, such as a vehicle or real estate, that the lender can seize and take possession of in the event of non-payment. Unsecured loans do not require collateral security and are solely based on the borrower’s creditworthiness.
3. How Long Does It Take To Get Approved for an Unsecured Loan?
The time to get approval for such a loan depends on the lender and the borrower’s credit profile. Online lenders often offer quicker approval times, sometimes within a few business days. Traditional banks may take longer, typically a week or more.
