Collateral is the term used for anything that a borrower uses to guarantee to a lender that the borrower will repay the loan. If the borrower defaults on the loan, then the lender takes possession of the collateral and sells it. For those who have something that is valuable enough to be considered as collateral, secured loans are the typical option. For the others who do not have anything of value that can be used as collateral, unsecured cash loans are the only viable option. If you need a cash loan but have no collateral, an unsecured cash loan can give you the flexibility you need. Here’s what you need to know.
What are Unsecured Cash Loans?
As mentioned above, these types of loans are not secured by collateral. For this reason, they are otherwise known as “signature loans”, since the only guarantee you are giving is your signature. What this means for the lender is that they cannot take anything away from you in the event that you do not pay them back, making this type of loan a higher risk than a secured loan..
An Unsecured Cash Loan is Not Risk-Free for You
Despite offering a great alternative for those individuals who do not yet have the collateral to back up their promise to repay, these loans come with some caveats. Because these loans are a larger risk for the lender, you can expect the interest rates to be higher than they would be for a secured loan. In addition to this, failing to repay these loans should not be treated lightly, because in such an event the lenders are within their rights to sue you, or otherwise hold you legally responsible for not having repaid your debt. If the lender pursues the issue in court and wins, they may be able to garnish your wages.
Things to Know about Unsecured Cash Loans
The first thing to keep in mind is that you will need to have a very good credit score if you wish to get approved for such a loan. This goes back to it being a higher risk for the lender, so it is only natural that they will want to make sure you will be able to keep your word. Once you have the money, you can use it in any way you see fit. Typically, you get all the money at once, and then you will have to begin making monthly repayments. This continues until you have repaid both the interest fees and the initial amount that you borrowed. The great benefit of these types of loans is that they help you to improve your credit score, provided that you make the payments on time.
Those with Bad Credit May Still be Eligible for Unsecured Loans
Because bad credit means that the risk for the lender is even higher, obtaining an unsecured loan will prove to be a difficult process if you have a poor credit rating. Nevertheless, there is hope, though you will have to expect much higher interest rates than those with good credit. If you are absolutely sure that there is nothing you can use as collateral (even a car may count as one), then you will most likely need to find someone who is willing to co-sign for you. The job of the co-signer is to promise that they will repay the loan in the event that you are unable to. In order to be able to do so, the co-signer must have both a good credit score and enough income to repay the loan in one lump sum, should the need arise.
For those who don’t have anything to use as collateral, but find themselves in need of some cash, taking an unsecured loan is the only viable option. If you are one of those people, then remember that there are some things you must be careful about – namely, the interest rates and penalties for defaulting. However, there are also some benefits, such as that these loans enable you to build your credit, and they are less risky for you. When you need a loan and don’t have collateral, an unsecured loan can give you the cash flow you need.