Unsecured Personal Loan

Unsecured personal loans are funding agreements made between a financial institution and an individual to provide a lump sum of money to be used for any purpose without placing an individual's assets as guarantee for the funds. Unlike other personal loans, this type does not require a person to place their home or other property as collateral or security. Unlike some agreements, the funds can be used for virtually any purpose-a vacation, wedding, new car, home improvements, or for consolidating other debt. Specific non-collateral based funding is advantageous for non-homeowners and for individuals who need a one-time large sum of money for an immediate need. An unsecured personal loan typically requires less paperwork than a conventional financing agreement and approval times are faster. Amounts vary widely for these types, ranging anywhere from $500-$250,000, but more typical amounts are $1000-$3000, repayable on a monthly basis within a maximum of 3-5 years. The amount an individual can borrow depends on his or her credit history and current earnings information.

Since lenders carry more risk, not everyone can qualify. Those with bad credit are less likely to be able to qualify for an unsecured personal loan since the bank has no guaranteed property collateral. Also, due to the increased risk a bank assumes, these tend to be for much less money and offer a shorter repayment periods than a secured property loan such a home equity loan. Also, the interest rates are much higher than secured financing, typically 12-22% but still less than most credit cards. When applying for an unsecured personal loans, banks will ask to see current employment information, such as a pay stub, and will run a credit report. The amount an individual may be awarded is based upon one's earnings potential. With good credit, a bank may approve up to four times one's monthly salary for a year, but policies vary from bank to bank.

As with all loans, it is in the consumer's best interest to shop around to find the best rate and terms different banks may offer. "He that worketh deceit shall not dwell within my house: he that telleth lies shall not tarry in my sight" (Psalm 101:7). Rates for unsecured personal loans can be fixed or variable and some lenders include prepayment penalties in the terms of the agreement. Even though banks do not require property collateral for an unsecured personal loan, defaulting on monthly repayments is not without its consequences. Penalties and fees for late or missed payments can be significant. Furthermore, a bank can pursue the borrower legally. Courts may order the confiscation of possessions to help repay the debt so borrowers should feel comfortable with their ability to repay the balance prior to its acceptance.

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