There are many sources from which you can get loans without collateral, especially these days. This loan option helps you offset bills, cover emergency expenses, make huge purchases, and pay off debts without the pressure of putting up an item of value as collateral. Another name for this type of loan is an unsecured loan and it is the opposite of its counterpart, secured consumer loans.
What makes unsecured loan a popular choice among many borrowers is its ease of application. You can easily fill out the application online or in person and receive the borrowed money in no time and without pledging any collateral. If you don’t have any asset of value in your possession, this is the ideal credit facility to go for.
For those who have never taken up this loan before, you might be wondering how it works. The truth is that, with the many lenders available, your biggest challenge will be choosing from the lot, the lender that will offer you’re the best overall experience. Thankfully, in this article we will guide through the process, helping you ensure you get the best consumer loan available.
Where Can I Get the Best Loan Without Collateral?
There are different sources from which you can borrow the funds you need. We’ll briefly look at some of these sources as well as their pros and cons.
Commercial Banks
These are the primary or traditional sources for all kinds of credit facilities. You can get a loan from these institutions without collateral. Commercial banks offer different ways through which to access unsecured funding. These include personal loans, debt consolidation credit, and some refinancing options.
Customers with an existing relationship with commercial banks are more likely to get the best consumer loan offer available. So if you already have an account with a bank, ask them what they can offer you.
The following are the pros or advantages of borrowing from commercial banks:
- They are institutional lenders and can usually offer lower rates.
- Customers with existing relationships with the bank get the best available offers.
- They have a large inventory of different unsecured financial products.
The following are some of the downsides of borrowing from commercial banks:
- Loan applications may be processed slowly because they usually have a lot applications.
- Approvals are more difficult to get than with other lenders.
- The bank might sell your loan to another financial institution.
Credit Unions
These are cooperative societies that have members with common interests and goals. Credit unions offer similar services as commercial banks, however, they only offer these to their members. They are non-profit organizations so they offer loans to their members at more affordable rates and better terms than commercial banks.
The following are some pros of borrowing from credit unions:
- They are non-profit so they lower interest rates and charges than commercial banks
- Members are almost certain of having their applications approved
The following are some of the cons of borrowing from credit unions:
- They offer few unsecured financial products, unlike other larger financial institutions
- You need to be a member before applying for any credit facility.
P2P Lending
This is also known as social lending. It is a financial method that involves individuals borrowing and lending money to each other. In P2P lending, the borrower receives money from people who are willing to offer some money at an interest rate via a P2P platform. Peer-to-Peer lending is an alternative source of income and is especially for people who are not able to get a loan from other sources.
The following are some of the pros of Peer-to-Peer lending:
- The lender can be an individual like you so it’s much easier to communicate with such a person.
- The interest rates on the loan might be lower than other traditional lenders’ rates.
The following are some of the cons of P2P lending:
- Peer-to-Peer lending websites might have complicated terms and fee structures, so as a borrower, you need to read through the details carefully.
- You might end up being a debtor to multiple persons instead of one lender.
Retirement Account
Most retirement plans allow employees to take a loan from the account. Some can offer up to 50% of the amount in the IRA and a repayment duration of 5 years. Because you are only borrowing from your 401(k) and not breaking the account, the borrowed funds are tax-free.
The following are some of the pros of borrowing from a retirement account:
- There are no complicated applications to fill out or fees to pay.
- The interest on the loan goes back to your retirement account
The following are some of the downsides of borrowing from a 401(k):
- You might face tax implications if you borrow more than your 401(k)
- You will have a reduced amount of money after retirement.
Online Financial Companies
These are private, online companies that offer lending services. They provide different types of unsecured consumer credit to borrowers. These online lenders offer competitive interest rates which will be determined by your credit report and financial history. Their approval rate and process are usually faster than other lenders.
The following are some of the benefits of borrowing from an online finance company:
- The application process is faster and less stringent than traditional sources.
- The application and closing costs are cheaper
- You can apply and get the funds on the same day
The following are the downsides of borrowing from online lenders:
- Less customer service quality
- They can usually charge much higher interest rates
- Less regulated than other traditional lenders
How to Get the Best Loan without Collateral
Now, you know the different places you can get this credit from. But what are the steps to take if you want to get the best offer? Here are some steps you should follow:
Understand How Much is Necessary
The worst thing to do as a borrower is to incur a debt you can’t afford. Although lenders try to make sure that they only offer an amount that you can repay before giving you a loan, it’s wise to determine this yourself. You can do this by determining the amount you need.
Also, create a budget and calculate how much you will repay every month. It can be hard to accurately deduce the repayment terms and interest rates of lenders, but you can make your deductions and build a budget around it.
Know Your Credit Score and Eligibility
The higher your score, the more likely you are to get the beste forbrukslån (best consumer loan) offer available. The best loans require you to have a score of 670 and above. You can however get good offers with a score of 580 and 669.
You can get a copy of your credit score from any of the credit reporting bureaus. Check through the report to see if there are any financial errors. Any mistakes you find should be reported promptly to the bureau.
If your score is low for some reason, you might still be able to get a loan. You can do so by getting a co-signer. This is someone with a better score than you do. The individual will help you borrow money by using his or her credit score. If you are not able to get a co-signer, it is wise to take steps to increase your score before applying
Consider Your Source
Based on your creditworthiness, you can decide on your preferred lender for this unsecured credit facility. With bad credit, it might be hard to borrow from commercial banks. However, some online lenders offer loans to people with bad scores. If you fail to qualify for a loan from the different places available, you can ask your trusted family members or friends to lend you some money. If none agrees, then be ready to wait and improve your credit score.
Consider Your Reason for the Loan
This is an important step to take because some lenders offer loans for only a specific purpose. For instance, some financial service providers might only specialize in lending money to small business owners, while some may specify that they don’t offer loans for business purposes. For this reason, it is wise to know why you want the money and choose a lender that is comfortable offering you funds for that purpose.
Shop for the Best Rates
Do not just choose the first loan offer you see. Take your time and look for the best rates. Make a comparison of different lenders and their interest rates before making a choice. Some lenders offer pre-qualification services to borrowers. Use this as a means to determine the rates available for you.
Apply with Your Preferred Lender
After doing the necessary research, it’s time to apply for the loan. You can complete the application either online or in person depending on the options available to you. Each financial service provider is different when asking for certain information on the application. However, they will surely ask you to provide your full name, proof of address, contact information, financial status, and employment information. Be ready to provide the information on time to hasten the application process.
Close the Loan
After approving your loan, the lender will ask you to fill out some necessary documents. One of the documents includes the agreement. It is wise to read through this document before signing. Once you have done this, the borrowed money will be sent to you within the timeframe indicated by the lender.
Conclusion
If you have decided to apply for an unsecured loan, it is wise to know if you can afford to make the repayments that will be required of you. Make use of the information provided in this article and you will be able to find a lender who will be willing to offer you a credit facility at a very competitive rate.
