To state it simply, unsecured loans are loans built around a borrower’s reputation or credit history. Unsecured loans are given to those whose assets and earning potential have passed the requirements. Collateral is not required in unsecured loans.
In some instances, the borrower signs a promissory note to incur unsecured loans and in the promissory note, the terms and conditions are stated to record what has been agreed upon. In most cases, interest rates are added to loans that are not paid on time.
In case of bankruptcy, unsecured loans or creditors usually get general claim on the borrower’s pledged assets. However, in most cases, creditors usually get less in the actual claim as opposed to secured creditors.
There are many types of unsecured loans. The best example usually is within groups of friends and families. In most cases, people who are in need of cash go to their closest friends or family members who have the means to lend them the money. This, in itself, is a form of unsecured loans. This transaction is made between lenders and borrowers who share mutual trust that the money will be paid for.
However, not all deals end up happily. There have been conflicts between friends and family members because of unpaid credits. In other words, it is best to look ahead and make sure you pay for the unsecured loans you are about to incur.
Another common example of unsecured loans is credit card transactions. Every time you pay for something online using your credit card, you are incurring unsecured loan. There is no collateral. However, your credit rating is at stake in the event you do not pay for the debt you have incurred.
Credit card transactions can be tricky. There have been cases wherein people have been reduced to bankruptcy due to poor use of credit cards. It is best to remember that each transaction is one of those unsecured loans. You have to be reminded of the huge interest rates you may be paying should you fail to pay your loan on time.
Online credits have also become popular recently. It is best for those who need emergency funds. At the same time, people who have problems incurring secured loans due to bad credit rating can avail online unsecured loans.
There are many good offers out there. In fact, lending institutions are competing to provide the best deals. Some lending institutions offer lower interest rates. Others have great deals that will help you save hundreds, if not thousands of dollars.
People who are in need of money to pay for medical bills can also use unsecured loans. This is one of the best features of this type of loan. Since it is accessible and no collateral is needed to secure the loan, people who badly need funds for medical purposes can get cash as soon as possible.