What exactly are unsecured loans? Well, they are defined as any loan that is granted based on your good credit and signature. You are not asked to put up any collateral such as a car, your home, RV etc. to secure the loan. Most unsecured loans are only given to people with an exceptional credit or FICO score, usually a score of 700 or more is required and your debt to income ratio must be no more then 60/40, meaning that all of your monthly expenses can not exceed more than 60% of your monthly gross income. If you have less than desirable credit, most lenders will ask that you either have a co-signer or put up some form of collateral.
These high risk personal loans will carry a higher interest rate because of the amount of risk the lender is taking by lending you money. Unsecured loans are usually alot easier to get if you have an established history in good standing with your bank or credit union. I you already have an open and revolving line of credit with them, your chances for an approval are much higher. Unsecured loans, as with any other loan out there, is always less expensive if paid in a timely manner. If possible, try not to wait to pay off the loan until the end of the terms. Even an extra $5 a month on top of your regular payment will pay down your loan balance up to a few months ahead of schedule, however, some companies do have pre-payment penalties for any loan paid in full with in 6 months of the initial request.
Read all fine print and make sure the lender answers any questions you may have about the loan before signing anything. Also keep in mind that if you are trying to repair your credit and up your FICO score, most companies require a minimum of 6 months of good payment history before the line of credit is reported to the three major credit agencies, Experian, Transunion and Equifax. But, after you have made timely payments on a loan, no matter how large or small the amount borrowed, you will see improvements in your credit report, making unsecured loans easier for you to obtain in the future.
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