Borrowing Without a Collateral: 8 Things to Know About Unsecured Loans

Running any business has its ups and downs. You will encounter financial challenges every once in a while. Unpredictable emergencies that need to be addressed within the shortest time possible. Maybe you need to replace some equipment to allow smooth operation of the business. Or you could be having an unsettled loan that could make you lose your assets if not paid on time. What would you do? Simple, apply for unsecured loans and forget all these problems. Here’s all you need to know about these loans.

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  1. No Collateral Required

Unlike in secured loans where you need to pledge legal property or assets as collaterals, unsecured loans do not require any collateral. So you won’t have to worry about losing your legal property or assets should you default. So, in case you’re having a personal emergency or you need some funds to open or expand your small business, applying for this kind of loan will be much easier. Don’t allow yourself to suffer a financial hiccup just because you have no assets or property to pledge when you can apply for an unsecured loan today. You can check UnsecuredFinanceAustralia.com.au for details.

  1. Less Background Checks

In the case of secured loans, the lender must do thorough checks to determine your credibility which could even include your lifestyle audit. You will also be forced to secure the loan with a collateral, which you’ll risk losing in case you default. But with unsecured loans, your creditworthiness is all that matters to the lenders. And if it’s all good, then what are you waiting for? What if you have no credit score? Again don’t worry, unsecured loans will still be the best way to build your credit score which will increase your loan limits and loan periods. But you must ensure that you pay for the unsecured loan on time.

  1. Real-Time Loans

Perhaps the main reason that you will go for an unsecured loan is that you need some fast cash for your personal use or for the business. And if the loan is to take days for it to be processed, it would cause some inconveniences. You could lose your loyal customers or the good paying contract you might miss because you lack some equipment which is not a good thing. But this is not the case with unsecured loans. The loans are very convenient in that when you apply for the loan, it will be processed within the shortest time possible and you can comfortably sort the financial issue you were facing.

  1. Easy to Apply

Initially, you would be required to go to the lenders and fill multiple pages of papers when applying for the loan. You would then go home and wait for the lender to consider your application contact you if you’re successful. This means you’d go to the bank a couple of times and might not get the loan. But not anymore. The technology is advancing and the lenders are also going digital. A majority of the lenders nowadays have an online presence where you can apply for the loan. All you’ll need to do is to log on to their websites – which are easy to navigate – and you’ll find the online application form. You’ll then fill the form and upload your address proofs, national ID and other necessary details.

  1. Credit Is a Reusable Resource

When you apply for an unsecured business loan, you will be given a set limit by the lender and as long as you will pay for the balance, you can reuse the credit anytime you need to. Despite the fact that the lender will only give you smaller limits because of loan security as compared to secured loans, you can negotiate this limit provided you’ll be willing to meet the additional terms. One main advantage of this option is that it will eliminate the hang-ups usually experienced with cash advances and traditional loans. So you won’t have to stress yourself again about constantly re-applying for funding.

  1. Reasonable Loan Term

The length of the loan you will apply (if awarded) will be used to determine the amount you’ll be paying on a regular basis. If the loan life is longer, the repayments will be lower. Unsecured loans are known for their short-term characteristic. “Isn’t this a disadvantage?” Well, yes you may not be allowed to extend the loan duration to, say 10 years. But to your advantage, you’ll be out of the financial obligation within a very short time and relieve yourself the loan repayment pressure. But of course, this will be so only if you pay for the loan on time. Defaulting will attract more fees and this will mean you’ll have to pay way more and for a longer period also.

  1. Flexible Loans

The amount you’ll get in the case of unsecured loans is significantly less than that of secured loans. But this doesn’t mean you won’t get enough loan for your business or personal emergency. If you have a good credit score, then you will qualify for a much higher loan amount. And the more the amount you take, the lesser and more affordable are the rates charged. And this will be to your advantage, especially if you’re taking the loan to start or expand your small business. You will also appreciate the flexibility in the repayment of the loan.

  1. There are Associated Fees

The unsecured loan that you’ll be awarded will have different ranges of the fees associated with it. You should ensure that you’ve considered all the fees before deciding on the loan amount and loan term to go for. Common fees associated with the loans include early payment, withdrawal fees, servicing fee, insurance, establishment fee, and early exit fee. Establishment fee is charged to your account at the commencement of the loan when it is deposited into your account. Early repayment fee applies if you decide to pay off the loan sooner than the agreed time.

Conclusion

It is very important to understand the essential facts of unsecured loans before going for it. And lucky for you, all the information you need to know about unsecured loans have been clearly explained. And the fact that the loan does not require a collateral makes it the best option for you when you’re having a financial emergency, especially in your business. While most lenders can give you the loan even for recreation purposes, do not rush to taking the loan unless you need it to save your business. Or if have a clear and effective plan on how you’re going to pay back.

 

How It All Works: Are Secured Loans Better Than Unsecured Loans?

Money, money, money! Everybody wants some more, but unfortunately, it isn’t always there when you need it. Whenever you have some kind of emergency, you may have to consider getting a loan. According to statistics, more people are seeking personal loans than ever before.

But before you go out and sign up for one, it’s important to understand the differences between the two types of loans – secured and unsecured loans.

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Unsecured Loans

This is a type of loan where that does not require any kind of collateral. All the lender will ask for is a bank statement and an agreement to repay the debt. If you fail to pay, the lender cannot take the assets you bought with the money. The lender also has no right to dictate how you use your assets. Thanks to the simple documentation required, these types of loans are widely available to everyone. The whole process is very short because you can get fast approval. This is much more convenient than seeking a loan from a bank and the terms of repayment are often quite flexible.

However, there are some disadvantages. Since there is no security for the loan, the lender carries a higher risk in case of default in payment. Unfortunately, this means that you will have to pay a higher rate of interest. Examples of unsecured loan include retail credit cards, personal loans, and student loans.

Secured Loans

This is the type of loan where you are required to provide some kind of collateral. The lender will ask you to pledge some kind of asset that you own as a way of guaranteeing repayment of the money. This collateral is usually something that has value, for example, cars, real estate, stocks, personal belongings, money, or even livestock. If you fail to pay back the loan as stipulated, the lender simply sells the collateral to pay off the debt. Examples of secured loans include car loans, home equity loans, and mortgages.

A secured loan has certain advantages. Firstly, it has lower interest rates. This is because the lender isn’t taking much of a risk due to the availability of collateral. Secondly, these loans have a more relaxed credit requirement. Finally, a secured loan enables you to borrow a larger amount of money. The disadvantages of secured loans include potential repossession of your assets in case of default. The lender can also restrict your usage of the collateral, thus preventing you from altering, depleting, or relocating the asset.

As you can see, an unsecured loan is a much more convenient way to get access to cash whenever you need it. However, there are a few things you must keep in mind. An unsecured loan should be taken out only for emergencies. Another factor to consider is the high rate of interest. Always make sure that you can actually pay back the loan on time. At the end of the day, knowledge is power. You need to understand what you are getting into before signing on the dotted line. Examine the pros and cons and decide the best kind of loan that will suit your needs.

 

Is Debt Always A Bad Thing?

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Could debt actually improve your life? Image licensed under Creative Commons.

Is debt always a bad thing? Many of us automatically assume debt is a hugely negative state of affairs, and while it’s true that unmanageable debt is frightening, it may surprise you to learn that some debt is actually positive. Often treated as a dirty word, most of us can’t avoid having some form of debt, while some try to actively avoid it.

And yet not all debt is created equal. There are some positive forms that could help you reach your goals quickly. You just have to know how to use it. Here’s how the right kind of debt can get you ahead of the financial game…

Debt Can Help You Make Money

It may sound hard to believe, but the right kind of debt really can help you to make money. The key is not to go into debt for consumer items you couldn’t otherwise afford, like that designer bag or new iPhone. Instead, use debt as a powerful tool to help you reach your life goals. Invest in an asset – like a house or apartment or even for something like doing an MBA and you’ll be channelling money into something that will pay you back. If you’re clever about the property you buy – selecting an up and coming area, negotiating a good purchase price armed with data from sites like MousePrice– then the value will rise over time. When you’re ready to sell, you will have accumulated a profit, even with the mortgage balance to settle. If you go into debt knowing that you’ll get greater value out of it further down the line then it’s a positive investment.

It Can Be Cost Effective For Purchases

Interest rates are at historic lows right now, so if you want to do something like buying a car, it’s actually better to use credit to make the purchase than dipping into savings and investments. If you have money in tax free savings like ISAs or even stocks and bonds, it doesn’t make sense to cancel out the returns you get from them in order to make a purchase. Considering your overall financial picture, you’re better off using credit to pay – especially if you lose tax benefits by liquidating an asset.

You Can Fill In Cash Flow Gaps

For those who have a portfolio career, are self-employed or starting their own business or work in a job that is highly dependent on commission, life often involves a fluctuating income. When used responsibly, short-term loans can get you through time periods where cashflow is lean – provided you use the boom times to pay them off. This regular repayment schedule will also help to build a really good credit rating, as lenders can see a history of responsible borrowing. You will then be offered better rates, reducing the overall cost of borrowing. This creates a virtuous circle of good credit that benefits your financial situation.

Debt doesn’t have to be an intimidating or shameful prospect- if you learn to use it responsibly, it can really be a force for good in your life.

 

3 Types Of Financial Crises (And How To Deal With Them)

None of us are immune to financial crises. Life often throws a spanner in the works, and it can throw us into a state of disarray, especially where money is concerned. It’s tough, but there are always solutions to the problem.

In this article, we will look at three types of financial crises. Some of the same rules apply for each, so follow the linked article for general coping advice in a financial crisis. However, there are extra steps you can take to alleviate the damage in the crises presented here.  While we hope you never have to endure any of the following, we hope the advice we give proves useful to you if you do.

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Crisis #1: Divorce

Not all marriages work, and this can be costly on both an emotional and financial level. You will be forced to live on a lower income when you find yourself on your own, and you may find yourself in a heated battle over possessions.

Tip: While still married, it’s always worth taking out a prenuptial agreement. This will protect your assets should divorce take place, and will afford you some level of financial security. This will ease the stress of the divorce, as you won’t have to pay court costs to regain possession of your goods should your former partner claim ownership. After the divorce, you may also want to downsize into a new property, unless this has already been forced upon you at the breakup stage. This will help you financially, as you should have less to pay on bills, and on an emotional level, moving somewhere new may also help you escape any bad memories that your current home holds.

Crisis #2: Unemployment

Suddenly finding yourself without a job can be traumatic. It doesn’t matter why you are unemployed, be it through your own fault or as the result of a redundancy, because either way, you are going to find yourself with a reduced income in the months to come.

Tip: Ensure you get the benefits you are entitled to. While being unemployed sucks, you are entitled to housing and unemployment benefit, both of which will alleviate the burden. There may be other benefits open to you, so check with your local government office for advice. The next thing to do is get back on the job ladder. Get your cv in order, and start browsing the job ads again. There is some excellent advice here to get you back into employment.

Crisis #3: An illness or an accident

Being unwell is bad enough, but there are the financial repercussions to deal with. UK readers have the advantage of free health care, so there shouldn’t be medical bills to consider, although readers in other provinces may have this burden. Being away from work can also lead to a lack of income. You might lose your job as a result of your health crisis, or you may have to live on a lower income for a while if your job doesn’t offer sick pay.

Tip: Again, speak to your local government office for any benefits you are entitled to. Especially when off work on a long-term basis, you will be entitled to statutory sick pay (when in the UK), and possibly other benefits as well. If housebound, there are ways you can generate some income too, so you may want to consider some of the money-making opportunities here to tide you over.

Finally

To prepare for a crisis, ensure you put money into an emergency fund. This will be useful if and when disaster strikes. And if you are going through a financial crisis now, follow our tips if they were applicable, and get any help you need, such as through a debt charity or your local citizen advice centre. You are going to have to budget what you have, and you will have to curb unwise spending, but there are steps you can take in any circumstance to get yourself back on your feet.

The Road To Good Credit

One of the things that you don’t necessarily learn at school is how to improve your credit score. Why is this important? The health of your credit score can dictate whether or not you have a difficult time acquiring a loan, a car and even a mortgage. So needless to say, understanding how to look after it is a pretty important life skill.

It’s easy to fall into the trap of thinking that because you’ve never needed to borrow money before then your credit profile must be great but this isn’t always the case. In order to build up good credit you need to be able to show lenders that you’re a responsible borrower and not a risk to lend to. I mean, if someone’s going to let you drive away in a car worth thousands of pounds, they want to make sure that you’re reliable and able to stick to the terms of your contract.

Credit reference agencies will keep a record of your credit information, and this is what lenders will use when assessing whether or not you’re going to get that car or mortgage. Having good credit will also open you up to the best deals and interest rates, so you’ll ultimately save money in the long run.

Likewise, bad credit can mean higher interest rates as you’ll generally be seen as more of a risk. It can be very worthwhile to read up on the subject, such as this guide on Stoneacre, to help you understand the pitfalls of a bad credit profile.

Understanding what can influence your score ensures that you can take the necessary steps to repair it if required. There are some simple steps you can take to make sure you keep a good credit profile, several of which are outlined in this handy infographic below.

 

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