There are possibly 1001 things that go through your mind, perhaps, financial hardships could be one of them. So, when you are going through such hardships, you might want to consider getting additional financial assistance that can surely help to relieve that stress of yours. You might be wondering if you should pursue getting a loan to help with your financial constraints.
But the question that comes next is, what is an unsecured loan? How does it differ from secured loans? How does it work? Worry not, as we’ve got you covered!
What is an unsecured loan?
So, the main question here is, what exactly is an unsecured loan? Basically, an unsecured loan is more straightforward compared to secured loans whereby it is not attached to any collateral. When you apply for an unsecured personal loan, you don’t need to provide collateral in order for you to get the loan approved. Collateral is when you secure a loan with your pledged asset.
Physical assets include the borrower’s home or vehicle whereby the lender will have the right to take these physical assets away from you if you don’t do repayments. However, when you apply for an unsecured loan, the lender will not be able to do such things as pledging collateral is not part of the deal. The most important factor to take into consideration is your creditworthiness as well as other factors such as your personal income, debts like your credit card debts, personal loans and banking loan, and also your savings to check if you qualify to get an unsecured loan.
However, do note that when you don’t provide collateral to the lender, the lender will be susceptible to more risks of delayed payment or the borrower not paying back the money. As such, the lender may charge the borrower with higher interest rates or will require the borrower to have a really good credit score in order for the loan to be approved.
So, how do unsecured loans work?
Basically, when you apply for an unsecured loan, you and the lender have mutually agreed on an agreement regarding the repayment terms, the interest rates as well as the period of time that you have to pay off the money borrowed. Because unsecured loans do not require you to pledge collateral, what will happen if you don’t have the ability to repay is that you might face additional charges in addition to the loan amount that would inadvertently affect your credit ratings. In the event of the borrower not paying back the money borrowed, the lender can go to the court to settle the issue.
Types of unsecured loans
Now, the question that comes next is, are there different types of unsecured loans? The answer is, yes! If you are planning to get an unsecured loan, distinguishing the different types of loans can help you to choose the best that suits your needs. Here are the types of unsecured loans:
Personal loans are a type of loan where the borrower would use for any kind of personal reasons such as to pay for emergency situations, medical bills, or even to make large purchases. A personal loan is a sum of money that you borrow from financial institutions such as banks, credit unions, or any licensed moneylenders. Once you have borrowed the money, you are required to pay in fixed monthly installments with an interest set by the financial institutions.
Student loans are also a type of unsecured loan. This type of loan is available through the government or any private student loans whereby the money is used to pay for any expenses regarding education such as tuition fees, books and supplies. However, just like any other loan, late payment is unethical and the borrowers must pay back the money with an interest.
It might not occur to you, but credit cards are actually a type of unsecured loan! To note, a revolving loan is one that has a credit limit. When you use your credit cards, you borrow money from a financial institution, for example, a bank, until you get to pay back the money. Basically, what happens when you apply for a credit card is that a bank will approve a certain amount of money that the borrower can spend, repay and use again.
To sum up, credit cards and personal lines of credit are one of the types of unsecured loans. However, do note that the credit card interest rates may vary over time. Some may even have higher interest rates over time, while others will lower their interest rate to entice newer customers.
Should you choose an unsecured or secured loan?
It’s also imperative to take note of what a secured loan is. A secured loan is a type of loan where you have to pledge an asset of your own in order for the loan to be approved. In most cases, the asset is your home or your car in order to give security to the lender that you will unquestionably repay the loan.
When the lender gets a hold of your asset, it will provide them with protection should the borrower fail to repay the loan. On the bright side, the perks of taking out secured loans are a lower interest rate compared to an unsecured loan. So, an unsecured loan or a secured loan? Which is the better choice? Both have its pros and cons, but we’d like to suggest that taking out an unsecured personal loan is the best for you! Why?
Well, although a secured loan comes with a relatively lower interest rate, a secured loan will need you to pledge your asset in the first place above everything else. It is crucial for you to provide them the guarantee that you have collateral. However, if you are suddenly facing a financial crisis, pledging collateral might not be as easy as it seems. Not everyone has the privilege of owning a house, or a car, especially if you have only started working and don’t have enough savings yet to make these large purchases. The major difference between the two is the collateral.
As mentioned before, secured loans require you to provide collateral, an item or something that has a monetary value similar or bigger than the amount of money you have borrowed. So, imagine if you’re a student and need financial help to finance your studies, a secured loan cannot grant you a student loan as easily as an unsecured personal loan. Applying for an unsecured personal loan is more convenient due to these circumstances.
How can an unsecured loan help you?
There are reliable moneylenders in Singapore that offer unsecured loans with low interest rates and flexible payment plans. Nowadays, getting a loan from traditional banks or any other financial services might be a bit of a hassle as you have to comply with many governmental and trade rules. As a result, it would be hard for you to get your loan approved immediately as there’s a high chance for one to get delayed response or even worse, being rejected from application.
So, what can you do? Consider getting unsecured loans from licensed moneylenders. For instance, A1 Credit, a dependable legal money lender provides several types of loans that can help you with your financial burden. Not only can you get faster approvals, but you can also enjoy convenient and easy repayments. One of the loan services that money lenders offer is personal loans. Undoubtedly, you can use personal loans for all kinds of purposes.
It could be for a medical emergency or even for home renovation purposes, getting an unsecured personal loan can help you in many ways. In fact, you can even get personal loans at A1 Credit for up to six times your salary per month. Hence, even with no pledged collateral, an unsecured loan can help you to get out a tight spot almost instantly.
If you are planning to start a business but have insufficient funds, applying for an unsecured loan to help fund your business startup would also be a great help. Surely, starting a business would require one to use a sum of money. This is when an unsecured loan would be the best alternative for you.
How to get an unsecured loan?
Certainly, there is a process for one to get an unsecured loan. Unlike a secured loan, the most important factor is that you can pledge your asset as collateral. But this is not the case for an unsecured loan. The lender will evaluate your application based on your word and your ability to do the repayment. Hence, there are several factors that a lender will take into account to avoid any damage on their part as unsecured loans are known to be quite risky.
Here are a few factors that the lenders will look at:
- Your Credit
Generally, a lender will check your borrowing history to identify if you are a reliable payer. If you have managed to successfully pay off your loans or credit cards in the past, there’s a very high chance for the lender to approve your application. In short, they will check your creditworthiness. You will need to have a good credit score if you want to get an unsecured loan. Hence, it’s important for you to have good credit if an unsecured loan is something that you would like to get in the future.
- Your income
A lender would want to know if you can meet your financial obligations which include your ability to pay off the loan in this future. Usually, a lender would ask the borrower to provide a proof of their stable income as this can help to lower the lender’s risk. Then, the lender would use the debt-to-income ratio to assess if you have what it takes to repay the loan. For instance, the lender would sum up the total of all of the monthly debt payments and then divide based on your gross monthly income.
The ratio would be an indicator of your ability to repay a loan whereby the lower the number of ratios, the higher chance for you to get your unsecured loan approved. Evidently, everything has its pros and cons. If you are stuck in financial hardship and need further financial help, an unsecured loan can benefit you in many ways. Once you have weighed off all the pros and cons of taking out an unsecured loan, you can go ahead to A1 Credit, one of Singapore’s finest and most reliable legal money lenders. Head over to the website now to find out more!