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Unsecured Loans
18 Apr 2019

What Are Unsecured Loans and How Do They Work?

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Americans owe $120 billion dollars in personal unsecured loans. As the fastest growing category of consumer debt, that number isn’t likely to be going down anytime soon.


Well, personal loans are useful for a number of applications. You can use them for everything from surprise medical bills to paying for a vacation.

If you’ve never taken out a personal loan before you may be wondering what it is and how it works. Specifically, will it help for the situation that you’re facing?

Let’s take a look at what they are and how they work to help you decide if a personal unsecured loan is right for you.

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Need more information? Check out for our tips on unsecured loans.

What Are Personal Unsecured Loans

Some types of loans like mortgages and car loans, offer built-in collateral. That is, something the lender can take possession of and sell if you fail to repay the loan.

Unsecured personal loans are much more flexible and you can request one for virtually any reason. There is no built-in collateral and you don’t have to offer any.

However, this means that the loan is riskier for the lender. There is nothing for them to take possession of and sell to recoup their investment if you don’t pay.

For this reason, interest rates tend to be higher and are more dependent on your credit score. A higher score will earn you a lower interest rate.

But don’t let a low score stop you. There are plenty of loan options for people with bad credit.

How Do They Work?

There a few different types of unsecured loans. However, they all work in a similar manner. You apply for the installment loan online and the lender approves you for a certain amount.

You then agree to a specific set of terms. This includes the interest rate, repayment terms, late fees, and prepayment (adding extra to your payment) fees.

Some online loans are fixed-rate, meaning that the interest rate will stay the same for the life of the loan. Others adjust with market conditions. A fixed-rate is most common and is the most stable. An adjustable rate can potentially save you money, but it can also cost more, so beware.

Types of Unsecured Loans

The signature loan is the most simple type of unsecured payday loan no credit check. This loan simply requires a signature and your promise to pay. As you can imagine, the lender will rely heavily on your credit score in this case.

You can also take out a personal line of credit. This works similar to a home equity line of credit but is not secured by your home. You can take out money as you need (up to your limit). As you pay it down, you are free to withdraw more if necessary.

You can also use credit cards in the same way as a personal line of credit. If you already have a card, this can be a convenient way to get the money you need, as you need it. Keep in mind that the interest rate on cards tends to be rather unfavorable and you should keep careful track of your spending.

Finding an Unsecured Loan

The Internet makes it easy to find and apply for unsecured loans. All you have to do is perform a quick search and you’ll have several options within seconds.

Request a loan today to get started! Here are some other articles you might find helpful:

Your guide to bad credit installment loans online
Personal installment loans and how to get one with Jora Credit
What are the requirements for a fast cash loan?
These are the top ten payday loan companies