What are they and what do they do?

Unsecured personal loans give consumers the freedom to borrow money without the use of collateral. More traditional loans often come with the stipulation of assigning ownership of certain assets to the lender until loan terms are completely fulfilled. With unsecured loans, lenders retain all possession of valuable property.

Although unsecured personal loans may be used for many situations, they are most often suggested to individuals desiring debt consolidation. The intent of the loan is for the borrower to pay off all other debts with the monies granted to them by one lender. These types of loans are favorable to many lenders as they profit through interest and lengthened term times.

How to Get an Unsecured Personal Loan

Acquiring an unsecured personal loan is sometimes difficult. To qualify, most applicants must have an excellent credit history and a steady income to repay the debt. In most cases, a credit score of 700 or above constitutes a better chance of qualifying for an unsecured loan, but does not guarantee acceptance. It is possible to get one of these loans with a lower score, but interest rates are often much higher.

The process of for an unsecured personal loan is fairly simple and it similar to many other loan requests. Individuals may apply online to several reputable banks or in person at local branches. Most banks require you to:

• Fill out an online or paper application.
• Provide verification of at least one full month of income such as pay stubs, a letter from your employer, or most recent tax return.
• Provide a copy of your most recent bank statements.
• Present proper identification

Then what?

Once the bank receives your request, a loan officer will inspect documentation, analyze your credit score, and evaluate the risk associated with giving you an unsecured loan.

If for any reason the bank feels you may not repay the debt or finds your debt to income ratio is insufficient, a prompt denial is usually issued. In this case, there are alternate lenders that may assume your debt. These lenders often specialize in high risk, low income lending but put borrowers at risk with higher interest rates and predatory lending practices.

If your application is approved, a list of obligations will need to be presented to the bank for pay-off. The bank will then disburse the agreed upon funds to each creditor in order to satisfy the debt. Upon finalization, paid lenders should note your accounts as paid-in-full and notify credit bureaus of your discharge.

After approval and a set amount of time; usually 30 days after the loan is made, you will then be expected to assume repayment of the newly established unsecured loan. If you default on the loan by not making regularly scheduled payments, the lender is forced to initiate procedures to enforce your obligations. Common debt recovery practices include, but are not limited to:

• Wage garnishment
• Mortgage liens
• Negative reports to credit bureaus

As you can see, it is crucial when taking on the responsibility of an unsecured personal loan that you are fully prepared and able to repay the loan as agreed. Consequences for failure to pay back can be devastating for any future plans.