What are unsecured personal loans?
Unsecured loans are loans which are extended to borrowers without the lender taking any collateral in return. For the borrower, unsecured personal loans and unsecured business loans come with less risk, but they also generally have payment terms that are more in the bank's favor. For example, interest rates are typically higher with unsecure loans than with secured loans (which require collateral), and repayment terms more rigid. Banks want to minimize risks while making profits, and unsecured loans require them to take on a little more risk; thus, they need to make a little more profit to justify the increased risk, which is why unsecured loans come with slightly higher interest rates.
How Unsecured Loans Work
For unsecured loans from a bank or credit union, you will have to meet with a loan officer who will review your employment situation and ask you questions about your income situation. Your credit history will also be reviewed in detail, and unsecured bad credit loans are not typically offered by banks. For these, you will have to work with alternative lenders and be prepared to be limited to small amounts of money. In general, unsecured loans are only intended for smaller amounts of cash for unexpected expenses and emergencies. For larger amounts of money, you will need to get secured loans, which require you to put up some collateral.
After reviewing the application, the loan officer will approve or deny your request. If it is approved, the funds will be made available to you through your bank account and you are free to use them as you wish. Carefully review all documents before signing them, as the loan documents contain important information on repayment terms, including your repayment responsibilities and the penalties you risk if you default on any of your payments.
Because they are usually for smaller amounts of money, customers with good credit can usually get fast unsecured loans or even same day unsecured loans, though not typically from a bank. These financial products are usually offered by payday lenders and alternative financial institutions, so if you need cash in a hurry, these options are well worth checking into.