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An unsecured personal loan allows you to borrow money without having to offer a security on it like your home or car. Application for this loan is mainly based on your credit rating, the amount borrowed and financial status. Upon acquiring the loan, one is legally bound to repay the loan as agreed. Unsecured loans have become popular due to the increased competition among lenders who want to attract customers they deem as least likely to default.
Before deciding whether or not to advance an unsecured personal loan with Click Finance, the lender usually looks at the credit history of the borrower. This may be done by using an approved credit reference agency. The agency make a search based on the borrower’s name and address as indicated in the loan application form. This credit check shows how risky it is to give the borrower the unsecured loan based on his/her credit history. In case the borrower has no past credit issues like loan default, he/she is eligible for an unsecured loan. Most lenders also ask for income information of the borrower and other credit reports. Borrowers with strong credit rating normally get unsecured personal loans quickly, with less paperwork and at a relatively low interest rate.
An Unsecured personal loan can be used for several purposes including: buying a car, taking a vacation consolidating debts into a less expensive loan or renovating a home. In case borrowers default, their credit rating weakens which negatively affect their future borrowing. Legal action may also be taken against defaulters but they do not have to surrender assets because unsecured loans are not backed by collateral.
Unsecured personal loans have several benefits to the borrower. To start with, the loans do not require collateral/ security. They are hence attractive to borrowers who lack assets to pledge as security for a loan. Secondly, borrowers with strong credit rating can get the loans promptly and can hence fulfill urgent financial needs. Thirdly, lenders advance unsecured loans at relatively low rates to reliable customers. Therefore, customers with strong credit rating can save a lot of money in interest charges over time. Fourthly, interest rates for unsecured loans are normally fixed. This is unlike the credit cards of which interest rates may fluctuate. However, when borrowing an unsecured personal loan, one should compare the interest rates as offered by different lenders. Finally, if the borrower services the loan appropriately, it may increase his/her credit rating hence making him/her attractive to other lenders. This enables a borrower to get unsecured personal loans easily in future.
Still, unsecured personal loans have some potential demerits. To begin with, lenders can report borrowers who make late payments to credit reference agencies. This lowers the credit rating of the borrower thereby limiting chances of getting other loans and attractive interest rates in future. Secondly, borrowers can get better deals in loans backed by security. For instance, home equity loans which use the home as security normally charge lower interest rates than unsecured loans. Finally, unsecured loans are not appropriate for customers with minor credit problems as they would end up paying relatively higher interest rates.