Unsecured Loans

If you need to borrow money you may be wondering what an unsecured loan is. An unsecured loan means that you don’t put up anything as collateral, whereas with a secured loan there’s something the lender can take from you if you default.

One example of an unsecured loan would be a cash advance. You don’t offer anything to the credit card company as security that you will pay the loan back. They rely on your credit history to make sure they’ll be repaid. For this reason, an unsecured loan requires good credit or the lender will charge you a very high interest rate in return for taking a risk. A secured loan may be easier for you to get if you have bad credit than an unsecured loan. However, a personal loan from a friend also qualifies as an unsecured loan, unless he or she demands something in return as collateral!

The most common place to get an unsecured loan is from a bank or credit union. You can search for possible lenders online or in person, but it’s a good idea to have in mind the type of unsecured loan you want before you start these discussions.

One specialized type of unsecured loan is the personal loan, where you as an individual guarantee that the loan will be repaid. This kind of unsecured loan can be used for anything you desire, but you personally are responsible for paying it back. Your personal credit history will determine whether you qualify for such an unsecured loan.

Another type of unsecured loan is the business loan. A business loan is for business purposes only, and if you default on the loan, only the business is responsible for paying it back, not the individual. This kind of unsecured loan may have restrictions on what you can use it for—advertising would be okay, but a trip to Hawaii wouldn’t, unless you’re attending a business conference there. There is a lot of competition for this kind of unsecured loan so if you want to apply for one you should have a good business plan ready that will prove your ability to pay it back to the lenders.

Still another type of unsecured loan is the business loan with personal guarantee. This is intended for business use only but requires the individual to promise to pay it back if the business fails. This kind of unsecured loan is often used by people with good credit who have an unconventional business idea they want to get off the ground. If you obtain this type of unsecured loan and your business fails, you’ll have to pay the lender back from your personal funds or file for bankruptcy.

These days there’s another method for finding an unsecured loan—online private lending. Sites such as prosper.com and myrichuncle.com let private investors bid on your unsecured loan. They split the risk by allowing multiple bidders, and in turn for taking that risk, your unsecured loan will have a higher interest rate than is usual. However, it’s a good option for those who can’t qualify for a traditional unsecured loan. See personal unsecured loans to see how Liberty Unsecured can help you with your financing needs.