There are two basic types of debt, secured debt and unsecured debt, and the difference is important in bankruptcy. This page explains the distinction between them, along with some other concepts of debt.
The operator of this site is not a direct lender. Loan terms, conditions and policies vary by lender and applicant qualifications. Late or missed loan payments may be subject to increased fees and interest rates. Not all lending partners offer up to 2,000 loans, and not all applicants will be approved for their requested loan amounts. Loan repayment periods vary by lender also. Lenders may use collection services for non-payment of loans.
Since this kind of loan is not backed by any collateral, the applicant’s credit history is of prime importance. On completion of necessary application, the applicant has to authorize a credit check and give sufficient documentation to prove that the loan repayment can be made. The lending company or bank completes the underwriting formalities through automated systems or through human verification process and the loan can be approved or declined. If the loan is approved, the money is transferred to the applicant’s bank account or a bank instrument sent to the applicant’s address. Direct bank transfers usually follow an online personal loan application request.
However, there are several instances when people have been duped by shady firms and agencies working on the Internet; they lure people with bad credit by advertising these types of loans without credit checks. They may request the applicant to provide processing fees or even make a couple of monthly installment payments to provide good reference. The money is as good as gone and there will be no evident sign of any loan forthcoming.
A line of credit is an unsecured loan offered by a financial institution. While a line of credit can be a secured loan if you have collateral you want to use against it, it is often used as an unsecured loan. Approved customers have a cap on the amount they can borrow (which is determined by their credit). You generally have to have an account at the financial institution you’re using for the loan. A home equity line of credit is an example.
If you own a credit card, you’ve probably seen the line on your monthly bill about the interest rate for a cash advance. Ever notice how much higher it is than your normal interest rate? Cash advances come in two forms: advances based on your income or advances based on your credit limit. As with most unsecured loans, cash advances have a higher interest rate and require a faster turnaround time for repayment. Most cash advances are expected to be paid back on your next payday or during your next credit card billing cycle.
Signature loans are so named because the only thing securing the loan is your signature. You simply need toÂ promise that you’ll repay the person or business lending you money. Signature loans are often available at banks and credit unions and are awarded in installments. The borrower usually repays the loan with set monthly payments until the total amount has been repair. Signature loans tend to have a lower interest rate than many other forms of unsecured loans. This makes them an attractive option for first-time borrowers.
Peer to peer loans are an unsecure way of borrowing money as the borrower and lender have to rely on individual people rather than businesses. Websites such as Lending Club or Prosper allow the borrower to post a loan request on the website where potential lenders can choose whether or not to grant them the money. Like other unsecured loans, peer to peer loans are also provided in fixed rate installments and come with a high interest rate.
Unsecured loans (also referred to as personal loans) are loans that are not secured against an asset. However, they do need to be guaranteed against something, and that takes the form of your credit score and financial history. As a result, these loans tend to have higher interest rates than secured loans and lenders cannot hand out too large a payment – bank or building societies will usually lend between 1,000 and 25,000 over a period of one to seven years.