What Are Unsecured Loans And How Can You Get One?
Unsecured loans for bad credit borrowers are widely advertised online. If you’re interested in applying for this type of lending but aren’t sure exactly how it works, then keep reading. For you to make the best choice when selecting a loan provider, we’ll help you understand no-collateral lending.
How Unsecured Lending Works
If you’re a first-time personal loan applicant, you may not be familiar with the term unsecured lending. Despite its name, this type of financing is generally very safe. Unsecured simply means that you don’t have to provide an asset, such as your vehicle or home, as collateral to guarantee the amount you borrow.
- Unsecured loans use your credit rating, debt repayment history, income, and employment situation as the main criteria for approval
- Since this type of financing relies heavily on your financial behavior to ensure payment, you’ll need to demonstrate to your lender that you have a proactive and responsible relationship with money and won’t default on your payments
For these reasons, your credit score (which measures your ability to repay your debt on time) is often an important factor affecting your chances of being approved. It also determines the interest rate you’re likely to be offered.
Can Applicants With Low FICO Scores Apply?
Your FICO numbers are essential when applying for financing that doesn’t require collateral.
Your creditworthiness plays an essential role in the process your lender will follow when deciding whether to approve your application. However, since many lending product providers cater specifically to customers with subprime credit, you’ll probably find that other factors are as important as your score.
These may include:
- Your income and employment situation
- Your financial history
- Your monthly expenses
- The total value of your existing debts
Overall, you shouldn’t let bad credit discourage you from applying for a lending product. You’ll simply want to select a lender that specializes in customers with financial profiles like yours.
The Benefits Of Unsecured Loans
Personal Loans, especially those provided by online lenders, offer a variety of unique benefits.
- Faster application times: Many online lenders feature a 100% digital application process that can be completed within minutes. Some of them also feature preapproval and same-day funding for successful applicants
- Generous loan amounts: Most bad credit lending products range in value between $1,000 and $50,000, giving you plenty of flexibility in terms of the amount you can borrow
- Variable repayment terms: You’ll generally be able to select the number of months or years for repaying the amount you borrow. Longer tenures mean lower monthly payments for the same loan amount. Although, you may end up paying more interest over the lifetime of the lending product
What Can The Loan Be Used For?
One significant advantage of unsecured lending is that you’ll be able to use the funds you borrow to pay for a wide variety of expenses. Here are some of the many uses for a bad credit personal loan:
- Paying medical bills: From unexpected hospital visits to the cost of new glasses or dental treatments for your family, the cost of medical care can make a significant dent in your budget. A personal loan can help you settle these bills before they accrue a lot of interest or go into collections
- Vehicle repairs: Considering how important it is to have a well-maintained and reliable car, you’ll be reassured to know that you can finance your auto repairs using this type of lending product
- Debt refinancing: If your existing debt has a high APR associated with it, you could be paying more than necessary for your monthly installments. Debt refinancing and consolidation could allow you to combine your smaller loans into one larger one with a lower APR. This can save you a significant amount of money over time
Where To Find An Unsecured Bad Credit Personal Loan
Knowing where to apply for a lending product can increase your chances of a successful application and help you secure a favorable APR. Here are a couple of bad credit-friendly lenders you may want to consider.
- Upstart: This lender is known for its innovative credit risk assessment techniques, which look beyond your score. Instead, it takes your education, employment, and future earning potential into consideration during the application process
- Avant: If your low score and high debt to income ratio (DTI) prevent you from qualifying for financing, you’ll want to give this provider a try. Avant is popular among bad credit borrowers for its flexible lending terms and willingness to extend lending products
The Bottom Line
Unsecured personal loans are a quick, efficient, and versatile form of financing that you can use to pay for various expenses or consolidate your existing debt.
The good news for bad credit customers is that your FICO score is just one of many factors that impact your chances of being approved for this type of lending product. Approaching the right lender will save you time and boost your chances of a successful application.
