Unsecured personal loans are basically loans offered to you on the basis of your word alone.
You will want to be sure that you make all payments on such loans promptly and in the amount specified. This helps build trust between you and the lending community, and increases your chances of qualifying for more important loans for your home and/or vehicles later.
If you are considering an unsecured personal loan, ask yourself four questions:
1. Do I really need this loan? If not, do not apply for it.
2. Can I repay this loan as per the agreement? If not, do not apply for it.
3. Will obtaining this loan help me or hurt me? If it hurts you, do not apply for it.
4. Can I receive a loan from a reputable institution? If you cannot, do not get it!
Knowing what to look for in an unsecured loan is very important, as unscrupulous lenders abound and unsecured personal loans can be very detrimental to your financial situation if not acquired properly.
Unsecured personal loans can be obtained from many sources, and the general rule of thumb remains “if it sounds too good to be true, it probably is.” Beware of lenders who offer unsecured personal loans with no credit check, as they are usually preying on the desperate and vulnerable, and charge exorbitantly high interest rates and fees for short term unsecured loans.
Many unsecured loan companies will advertise “low” interest rates of only a few percent a month over an extended loan period. If you do not “do the math” you may not arrive at the real percentage they are charging for the extension of credit. A rate of 3% per month is 36% per year and over a third of the amount of the loan. Thus, a 3 year loan would mean having to repay double the money you actually borrowed!
Another thing to look for in an unsecured loan is the term or life of the loan. There are hundreds of short term loan offices springing up across the country that advertise how easy it is to obtain an unsecured personal loan. Once you have acquired the loan, they will continue to tell you how easy it is to renew it almost indefinitely. These loans are traps from which it is difficult to extricate yourself once you have begun the cycle of renewal and payment of additional interest.
A potential pitfall involves loans that are offered in exchange for registering with certain programs, such as purchasing phone cards or some other type of product offered by the loan company. Beware! These loans are scams. Once you have given the company permission to deduct automatic payments from your bank account, it is virtually impossible to get them to stop; although you are assured you can cancel at any time.
By and large one of the best unsecured personal loans you can obtain will be one offered by a credit union or other financial institution. If you cannot meet these standards, you probably should not obtain the loan. Typically, if you are in the process of recovering from financial difficulty or attempting to rebuild your credit, you can obtain a very small loan and pay it back over a period of months to qualify yourself for a larger loan and so forth.