Non-collateral loans are loans obtained without providing collateral for security. These unsecured loans place quick money in your pocket and may be used for different purposes. For example, one could obtain loan money to start a new company or pay for school fees. Types of non-collateral loans include: cash advance loans, signature loans (unsecured personal loans) and student loans.
Cash Advance Loans
Also known as a payday loan, a cash advance loan is a short-term loan whereby one pays a fee to borrow money. Cash advance loans are expensive; therefore, you may consider borrowing the cash from other sources such as friends, bank union or your credit card before settling for this option. This is because the annual percentage rate for borrowing a cash advance loan is high. It depends on factors such as the monthly interest rate, amount of borrowed money, fees chargeable and the period of time you borrow the money.
How a Cash Advance Loan Works
The borrower gives the lender a check for the amount of money he/she is borrowing, plus a fee. The lender then gives the borrower cash, less the amount of fee charged. On the borrower’s payday, they have to pay the money in cash plus the fee charged. If by a chance the borrower is not able to pay the money back after the agreed time, he or she may borrow the money again and pay another fee. This is called rolling over, which may make the loan more expensive in the long-run.
A signature loan, or unsecured personal loan, is one that a person borrows from banks or finance companies and uses his/her signature and a promise to pay as their security, hence the name signature. Interest rate for such loans is usually higher than for other credit forms due to the lack of real collateral.
How One Qualifies For a Signature Loan
To get a signature loan from whichever source, your creditworthiness has to be evaluated. What is your credit score? Since it is an unsecured loan, the lender has to ensure that your history of repaying any debt is on point. Some red flags on your credit report such as late or missed payments would make you an undesirable candidate for the loan. Your employment and debt-to-income ratio may also be considered to determine your candidacy. The fact that your promise to pay is the only guarantee the lender has makes it harder for one to qualify for an unsecured personal loan. If bad credit or lack of enough income makes the borrower unable to qualify for a loan, the lender may request a co-signer who has good credit to sign a promissory note to guarantee the loan.
These are loans offered to students to enable them pay education-related expenditures. Such expenses include; college tuition, textbooks and university accommodation. Basically, these loans can be obtained online through various programs and they have lower interest rates plus students are not expected to pay it back until the expiry of a grace period- which stars when they finish their studies.
There are two types of student loans- private and federal. Federal loans are made available to both parents and students, and have uniform requirements and rates. Examples of this include; Perkins loans, PLUS loans and Stafford loans. Private student loans are lent by lending agencies, and have varying interest rates, credit requirements and repayment schedule as they are established by the lender.
Student loans may also be categorized as direct subsidized and direct unsubsidized loans. Direct subsidized loans are accessed by undergraduate students with financial needs. Your university decides on how much to borrow, which should not go beyond your financial need. The interest of this loan is paid by the U.S Department of Education.
Direct unsubsidized loans can be accessed by both graduate and undergraduate students, without the need to demonstrate your financial need. How much to borrow is determined by colleges depending financial aid you obtain and cost of attendance. Interest payment is done by the student. Failure to pay this interest during these periods means that it is going to be summed up with your principal amount.
Generally, non-collateral loans attract higher interest rates. This means that one is going to be making higher monthly payments. It is therefore advisable for borrowers to assess their financial strengths before settling for personal bad credit loans also known as non-collateral loans. Let one evaluate whether they can be able to afford new monthly expenses first.