These days, most Americans rely on some form of credit to finance big purchases, deal with emergencies, go to school, and more. For those with good credit scores, the process is simple. They just head to their banks to fill out a loan application or respond to a credit card offer. Not everyone has excellent credit, though.
In some cases, people with low or no credit scores can obtain loans by working with specialized lenders and putting down collateral, as would be the case with a car loan, for example. People who already don’t have good credit may not have valuable assets that could be pledged as collateral. Thankfully, it’s often possible for them to get a loan without collateral, just like someone with good credit.
Understanding Secured vs. Unsecured Loans
Before discussing the next steps, it’s worth taking a moment to define terms. The types of loans that require collateral, the most prominent examples of which are mortgages and car loans, are called secured loans. Loans that don’t require collateral are unsecured, which means the lender is willing to approve an application based on credit score and proof of income, or even based on a borrower’s income level, alone. They are sometimes also referred to as signature loans.
How to Get an Unsecured Loan
People with good credit have some options when it comes to getting unsecured loans. Some visit traditional banks or credit unions, while others find it easier to submit applications to more specialized lenders online. While people with poor credit may have a hard time getting an unsecured bank loan, they should have little trouble finding a more specialized lender.
It takes less to get an unsecured loan online than it does to go through a traditional bank, which will inevitably perform a credit check. More specialized lenders typically require less paperwork. In most cases, applicants will only need:
- Proof of employment
- An active bank account
- A working phone number
- A government-issued photo ID
Borrowers must be at least 18 years old, and they must be legal residents of the United States. Beyond these basic requirements, there’s little to worry about. All it takes to get a loan is submitting an application and, if approved, filling out the required paperwork. Funds are often provided by the next business day.
How It Works
Wondering how these loans work and what the catch could be? Each lender is different, but it’s often the case that the amount of cash provided is lower and the interest rate is higher on unsecured loans to make up for the increased risk. Payments can be made in person or over the phone, but most people choose to have them deducted directly from their bank accounts for maximum convenience.
One of the great things about any kind of term loan, including unsecured personal loans, is that they have a clear payment schedule. The term can range from six months to five years, or more, but the required minimum payment will be the same each month.
Importance of Choosing the Right Lender
Not all signature loans are created equal, and the same goes for lenders, so don’t choose the first one that seems like it will approve an application. Take the time to research options and choose a bank or another lender that has a good reputation and offers reasonable interest rates.