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  • No Fees
  • Secure Application
  • Available 24/7

Despite having a regular source of income, there will be times when you’ll not be able to cover unexpected expenses, and that’s normal. There are a lot of people struggling with this, too and that’s one of the main reasons why an unsecured loan becomes handy.

If you’re not familiar with unsecured loans or you just want to know more about it, then you’ve come to the right place.

What Is An Unsecured Loan?

As the name suggests, unsecured loans are loans given to a borrower without pledging any collateral. This means that you don’t need to provide a house, car, or any asset to get financial assistance since this loan is based on trust. However, you need to prove the lender that you have a stable source of income and you can repay the loan on time.

This works differently from a secured loan, which, by the way, will require an asset in exchange for the advance. In case the borrower failed to settle the loan on time, the lender has the right to repossess the item, put it in the market, and use the money to repay the loan. With unsecured loans, none of your property will be repossessed; however, failing to settle the loan on its due date may result in a lower credit remark or a court order against you.

What Can Unsecured Loans Cover?

Most unsecured loans are personal; meaning, it can be used on any purpose such as for paying emergency bills, home renovations, and car repairs. Compared to secured loans, unsecured loans are less risky because no collateral is involved; however, the requirements can be more complicated.

Most loan providers, for instance, will require you to have a good or excellent credit rating before you apply for a loan. If you have a poor credit history, your chance of getting approved may be slim. However, you may still get unsecured loans even with a poor credit remark but then, the interest rate that you will settle is more expensive compared to the secured type.

When you take out a loan, there is an agreement with the lender that you will make the repayments of a certain amount, for a certain length of time every month. Credit is often based on the belief that you will pay off whatever you will borrow. Your credit is good when lenders will find you trustworthy enough to repay what you owe on time. If your credit is bad, there is an implication that you may likely not get your bills paid on time.

Loan Applications Can Negatively Your Credit Score

Applying for a loan can negatively impact your credit score. The reason for this is that in every credit application that you make, there will be a hard check, an inquiry on your credit report. This indicates that a lender has reviewed your records. If you make several loan applications within a short span of time, this could indicate to potential lenders that you are desperate. This can be a red flag that you might be trying to borrow money you cannot really afford to pay back.  

Timely Loan Payments Increase Your Score

When you get approved for a loan, it is important to get your monthly payments done on time since it can have a significant impact on your overall score. You will want to build your credit score not pull it down further and making the repayments on time is one way of ensuring this. Timely payment son your credit history makes you a more attractive borrower.

High Loan Balances Impact Your Credit Negatively

Your balance can influence your credit score. As you continue to pay the balance down, you continue to gain significant credit points. Generally, the larger the gap between the amount of your original loan and your loan balance, the better your credit rating becomes. This is why timely payments are crucial as it consistently chips off the loan balance, improving your trustworthiness to banks and lenders alike. 

Debt-to-Income Ratio and Your Loan

A lot of lenders look into any existing loans before they will decide whether to grant you a new one or not. An existing loan is already another item that will have to be deducted to your monthly income and will further diminish your ability to afford paying off another one. While most credit bureaus do not really include loan-to-income comparisons, many lenders these days include these in their calculations. They even include credit card debts in their calculation. If your dent-to-income ratio is high, lenders can interpret this as you being a high-risk borrower which could lead to high interest loans or in most cases, rejection. 

Frequently Asked Question

 

What is Personal Loan?

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What is Short Term Loan?

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What actually make our lending company very much preferred is because with have the best and most flexible repayment plan. We provide our clients the freedom to choose and get the best repayment plan that will suit their needs and financial status. We make sure that our clients will be able to pay on time without any hassle at all.