Answer to Some Queries on Unsecured Loans

By: Anaya Erika

What are unsecured loans?

Unsecured loans are loans that one takes without offering any collateral. Collateral means security against which the loan is sanctioned. Most often, it is a home with equity available in it. Though pledging a property is not necessary in this type of loan, endorsement on the agreement form is mandatory.

Why do lenders charge higher interest for unsecured loans?

Unsecured loans do not have the backing of collateral. This implies that the lenders have no material guarantee to recover his money unless the borrower pays off. He may take the borrower to the court, but this will not ensure that the loan will be repaid. This way, the lender undertakes some risk by offering loans without security. So, in order to compensate this risk, lenders charge high interest rates for the loan of this genre.

How unsecured loans can be availed with competitive interest rate?

It is not a must that you always have to pay higher interest for unsecured loans. In some cases, you can get this loan with competitive interest rate. The most important prerequisite for this is a good credit record. A good credit record speaks a lot in favour of the borrower. It is the assertion of the fact that the borrower was successful in his earlier repayments. There is strong likelihood that he will succeed again in future. Thus, the lender gets a kind of confirmation that his money will be paid off. So, he may not hesitate to give approval to the loan.

How can the Internet help to get a good deal on unsecured loans?

The Internet is a hub of loans. Lots of lenders are there available on the Internet. One can easily get access to them from anywhere, anytime. He can compare loans on the basis of APR and repayment terms quickly and easily. He could avail the loan without much hassle if he goes through the online lenders.

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