If you are short on cash, you might consider an unsecured personal loan. Personal loans can be used for any reason at all, and unsecured personal loans are the most common type. Let’s find out how to get the lowest unsecured loan rates.
What is an unsecured installment loan?
An installment loan is a loan in which there are a set number of scheduled payments over time. Many different types of loans are installment loans, including mortgages and auto loans.
If a loan is secured, it means it’s backed up by collateral. For example, some people take out a second mortgage (home equity loan) or put up a car or luxury item as collateral on a loan. If a borrower on a secured loan doesn’t make payments, they must forfeit the collateral. In the case of a home, this could mean foreclosure.
An unsecured loan, by definition, requires no collateral. These loans might be harder to acquire, especially for those with bad credit. Another difference is that unsecured personal loan rates are typically higher.
What determines unsecured personal loan rates?
Almost all loans are influenced by the prime rate. This rate is the best interest rate that banks and other lending institutions make to borrowers with the best credit. Unsecured personal loan rates take the prime rate then adjust for financial costs. There’s also an adjustment made based on the borrower’s credit score. In general, the lower the credit score, the higher the interest rate.
How to get the lowest unsecured personal loan rates
There’s no secret to getting low unsecured personal loan rates. Basically, you have to shop around. You can try banks, credit unions, online lenders, and peer-to-peer lending services.
One of the lowest rates around can be found in 0 percent interest credit cards. However, these low teaser rates are only good for 12-18 months. After the promotional period expires, expect to see much higher interest rates.
Credit unions are nonprofit organizations that typically serve a particular geographic area or industry. To get a credit union loan, you have to be a member. In many cases, credit unions offer very good unsecured personal loan rates. Make sure you verify that membership fees don’t negate any interest savings.
Other ways to find low unsecured personal loan rates
Another attractive option is a loan finder service. These platforms do the shopping for you to find several lenders with the lowest rates on the market. The great thing about these kinds of services is that they are usually free. The lenders pay for the service, so borrowers get all the benefit.
Avoiding the pitfalls of unsecured personal loans
When taking out any personal loan, make sure you ask about early repayment fees. These fees kick in if you pay off the loan early, which lenders don’t like because it’s an unexpected loss of interest income.
Also, if you make payments by automatic debit, be sure you have enough money in your bank account on the withdrawal date. Banks charge an overdraft fee, and not having enough money in your account to make a payment can also hurt your credit score.
Finally, stay on the lookout for scam artists. These crooks will promise low or no-interest for a set time period, only to clobber you with extremely high interest later. Check with the Better Business Bureau and the FTC to make sure the lender you are shopping for an unsecured personal loan from is legitimate.
What is an unsecured credit card?
If you’re already dealing with a poor credit history, you might find yourself in a catch-22 situation, since it can be difficult to qualify for new lines of credit to help rebuild your poor credit history. However, borrowers with poor credit can qualify for certain credit cards, which can help them improve their credit score over time.
These credit cards can be secured or unsecured credit cards. The only difference is that secured credit cards require borrowers to put down a cash deposit, whereas unsecured credit cards do not.
What is the meaning of clean loan?
A clean loan is a loan granted by the bank without first accepting any security (i.e. some asset, like a car or property, as collateral), for the loan.
Credible is a marketplace where lenders including Avant, LendingClub, PAVE, Prosper and Upstart compete for your business. You can compare personalized offers from multiple lenders on Credible.com without sharing your personal information with lenders or affecting your credit score. Vincent Chough is a writer who earned his medical degree from the University of Pittsburgh School of Medicine and practiced in the U.S. for 10 years. He now lives in Argentina, where he’s involved in NGO management at the executive level.