An unsecured personal loan is a great way to access cash you need, often in a hurry. Whether it’s to consolidate debt, pay for an unexpected expense or emergency, or any other use, you can use an unsecured personal loan however you like.
Yet there are some important things to understand how these types of loans work. If you’re thinking of taking out a personal loan, here’s what you need to look out for so you get the best loan you can afford to repay.
How Unsecured Personal Loans Work
There’s a lot to like about unsecured personal loans. First, there are no collateral requirements, so that means you don’t have to worry about taking the loan out against your car, your home, or any other personal property.
Another advantage is that both your interest rate and your monthly payments are fixed for the term of the loan, which means you’ll always be paying the same amount every month.
Yet these advantages also come with drawbacks. With no collateral, lenders rely primarily on whether you have a good credit rating when it comes to deciding if you’re worth the risk. If you’ve got less than stellar credit, that fixed interest rate on any loan you’re offered might be pretty high, or your application might be rejected outright! It’s best to avoid such problems altogether.
Successfully Applying for an Unsecured Personal Loan
As we mentioned above, your credit score can often be the exclusive determinator when it comes to qualifying for an unsecured loan. There are a few others that come into play, such as your overall income, which means you’ll be able to afford to repay the loan without trouble. If you want to borrow more than you can safely repay over time, lenders aren’t exactly going to be lining up for a chance to let you borrow money from them.
Lenders also take a close look at your debt-to-income ratio, which is a measurement of how much debt you have versus what you make per month. If a lender feels you don’t have the ability to take on another loan because you already have too much debt they might turn you down, regardless of whether you’re making regular payments on your other debt or not!
Applying for an Unsecured Personal Loan Without Stellar Credit
Not everyone can have picture-perfect credit. In the event that you might have below-average credit, or even not much credit history to speak of at all, you might not be as out of luck as you think when it comes to taking out unsecured borrowing. That’s because there are often lenders willing to take a risk on you — provided you’re willing to abide by the terms of the loan.
In most cases, these terms often include an interest rate that is likely higher than you would see if you had more favorable credit. How much higher depends on your personal circumstances and your lender, but a typical interest rate can range from as low as 5 percent to as high as 36 percent in some cases. Such a high rate means it will take much longer to repay the loan thanks to the added interest.
Other Things to Keep in Mind About Unsecured Personal Loans
It’s not always just interest rate and repayment schedule that you have to be aware of when it comes to unsecured personal loans. While it’s rare to find a lender that will charge you a fee just to apply for a loan, there are some that charge what’s called an “origination fee”, which is used to cover loan processing costs. This can be anywhere from 1 percent to 6 percent of the total cost of the loan.
Other things to be on the lookout for are whether your lender will charge you a prepayment penalty to discourage you from paying off your loan ahead of schedule. Since early payment can save you a bundle on interest fees, it’s always in your best interest to avoid lenders who might charge you for doing so.
Rely on Match Financial to Help You Find an Unsecured Personal Loan
Here at Match Financial, we’re in the business of helping you find the perfect loan for you. We can help connect you with lenders in our network and show you the terms of their available personal loans at a glance. Applying is quick and easy, and if approved you can receive your funds, directly into your account, as quickly as the next day. If you’re looking for an unsecured personal loan, turn to Match Financial today!