Unsecured loans are loans that aren’t attached to collateral. A lot of people like unsecured loans because they don’t have to worry about losing everything if they’re unable to pay. However, if you’re thinking of taking out an unsecured loan, be warned. Interest rates are usually much higher than with secured loans. And in order to maintain many types of unsecured loans, you’ll have to have a good credit score.
1. Credit Cards
A credit card is essentially an unsecured loan since you’re “borrowing” money from the credit card company to make a purchase with the intention of paying them back at a later date. Checkout our Tools Page to do a little credit card shopping.
2. Payday Loan
Payday loans have recently become a popular type of unsecured loan. A payday loan is a loan from a non-financial business where borrowers obtain enough money to cover their expenses until they receive their next paycheck. Payday loans are convenient, but they usually come with a high transaction fee and incredibly high interest rates. Some call it usury. Some businesses charge as much as 400% for interest!
3. Line of Credit
A line of credit is an unsecured loan offered by a financial institution. While a line of credit can be a secured loan if you have collateral you want to use against it, it is often used as an unsecured loan. Approved customers have a cap on the amount they can borrow (which is determined by their credit). You generally have to have an account at the financial institution you’re using for the loan. A home equity line of credit is an example.
4. Cash Advance
If you own a credit card, you’ve probably seen the line on your monthly bill about the interest rate for a cash advance. Ever notice how much higher it is than your normal interest rate? Cash advances come in two forms: advances based on your income or advances based on your credit limit. As with most unsecured loans, cash advances have a higher interest rate and require a faster turnaround time for repayment. Most cash advances are expected to be paid back on your next payday or during your next credit card billing cycle.
5. Signature Loans
Signature loans are so named because the only thing securing the loan is your signature. You simply need to promise that you’ll repay the person or business lending you money. Signature loans are often available at banks and credit unions and are awarded in installments. The borrower usually repays the loan with set monthly payments until the total amount has been repair. Signature loans tend to have a lower interest rate than many other forms of unsecured loans. This makes them an attractive option for first-time borrowers.
6. Student Loans
Student loans also fall under the unsecured loan category. Depending what organization you borrow through, interest rates, repayment plans, and grace periods vary greatly. However, most student loans don’t require previous credit history for the borrower.
7. Peer to Peer Loans
Peer to peer loans are an unsecure way of borrowing money as the borrower and lender have to rely on individual people rather than businesses. Websites such as Lending Club or Prosper allow the borrower to post a loan request on the website where potential lenders can choose whether or not to grant them the money. Like other unsecured loans, peer to peer loans are also provided in fixed rate installments and come with a high interest rate.
8. Small Business Loans
Small businesses usually have very few assets or collateral to use when applying for a loan. Many financial institutions or loan companies will offer unsecured loans for small businesses. These are usually granted for borrowers who have proven business experience, a good credit score, and collateral. Basically, banks like giving loans to people who don’t need them.
Depending on who you borrow from, the repayment terms can be flexible. But be aware that a lot of companies are wary about granting unsecured small business loans in the event that the business folds. These loans are granted with the understanding that the business is responsible for paying back the loan. Startups can get funding but it’s rare.
9. Business Loan with a Personal Guarantee
Some lenders will grant business loans with a personal guarantee, and while these loans are similar to general business loans, the individual is the responsible party instead of the business. The business is the official borrower. However, if something happens – such as the business being unsuccessful or the business having to close – an individual is then responsible for paying back the lender.
10. Term Loans
Term loans are offered by financial institutions for a specific amount that is agreed upon by the lender and borrower. This amount has a very specific repayment schedule and can be paid out in month to month, bimonthly, or biweekly installments. They also have a floating interest rate.
There are many ways to get unsecured loans. Choose a few of the above options and apply. I’ll bet you can snag at least one of them. Good luck and think long and hard whether or not to accept.