Unsecured Personal Loans for Fair Credit
Unsecured personal loans are ones you can borrow from a bank, credit union, or alternative lender to use for just about anything you want.
Whether you want to go on a trip, consolidate your credit card debt, or pay for home renovations, you can use your funds however you see fit.
With these in particular, they don’t require you to put up collateral in order to borrow money. Meaning, if you default, you don’t have to hand over any valuable property to your lender.
Secured vs. Unsecured Loans
The main difference that unsecured obligations don’t require collateral. Secured do.
This can be both a good and a bad thing.
The Good: These are less risky for you, the borrower. By not having to put up collateral, you are taking on less risk than the lender. If you default, the lender has to resort to other means, like selling your debt to a collections agency.
The Bad: Since they are riskier for lenders, they generally have higher interest rates and are harder to qualify for than one backed by collateral. Borrowing limits may be lower as well.
Still, if you’re able to qualify for a low-interest rate, unsecured personal loans are often a better option than a one backed by collateral.
How Much Does an Unsecured Personal Loan Cost?
To determine the possible cost, you need to look at four main factors: borrowing limit, interest rate, term, and fees.
Borrowing Limit: Borrowing limits vary by lender. For some lenders, you may only be able to take out $5,000 to $10,000. Others may offer as much as $40,000. BE sure to check with the lender of your choice to find out how much you can borrow.
Interest Rate: As mentioned, interest rates tend to be higher than ones backed by collateral. While interest rates vary, you should expect to find offers in the 10% to 13% range if you have a good credit score.
Term: Terms tend to be relatively short. Depending on the lender, you can expect a repayment term of one to five years.
Fees: Lenders might charge origination, prepayment, late payment, processing, and other fees at their discretion. Be sure to review your lender’s terms to understand what fees you might end up being charged.
Unsecured Personal Loans Benefits
Unsecured personal loans offer a number of advantages, including:
- Flexibility
- No collateral
- Available from a variety of lenders
- Fast approval process
- Less borrower-side risk
While they often offer lower interest rates and better terms, unsecured personal loans are less risky and may be a better option if you have a good credit history.
Tips for Applying for an Unsecured Personal Loan
Interested in applying?
Keep these tips in mind to make the application process as easy as possible.
- Compare Lenders
Lenders aren’t one-size-fits-all. It’s important to compare rates and terms between multiple lenders to find the best option for you.
Be sure to choose at least three or four different lenders to compare before moving forward with one.
- Get Pre-Approved
Getting pre-approved from multiple lenders will help make it easier to find the best choice for you.
Lenders use your basic personal and financial information to pre-approve you and offer terms based on this preliminary screening.
While terms may change after going through the official application process, pre-approval is a great way to see where you stand and what rates you may qualify for.
- Apply
After picking a lender, it’s time to apply. Most applications will require the following documents, so make sure to have them ready:
- Personal Identification (ID, Driver’s License, SSN)
- Proof of Income (Bank Statements, Pay Stubs, Tax Returns)
- Proof of Employment
- Credit History
- Unpaid Debts
- And more
Be sure to check with your lender for a complete list of necessary documents.
If your application is approved, make sure to review your agreement one last time before accepting the funds. If you agree to the terms, you can sign the agreement and receive your money.