You’ll always reach that one point in your life where you need a loan. That’s one of the major reasons you need to focus on your financials and make sure you’re ready in case of an emergency. One of the main factors which will be the deciding factor on how much loan you’ll be able to receive or how well you’ll be able to get it is your credit score.
What are credit scores?
Whether it’s a good credit score or a bad one, they’re one of the major aspects of your financials that the lenders will be looking at. After all, allowing you to borrow a sum of money means you need to guarantee them their money back within the required period.
Your credit score is the guarantee that they need; which means, if you have good credit then you really wouldn’t have much trouble in finding a good lender but the trouble would come in with bad credit. It keeps a track record of all your payments, debts and how well you’re able to handle them. Since your credit scores define your financial maturity, it will also give your lenders a detailed account of when you were able to repay the debts. Remember, timely payments means a good credit score!
If you have a score which isn’t really all that bright, don’t worry! You wouldn’t really be prevented from taking a loan because there are certain lenders who would be willing to help you out with the exception of interest rates, of course.
Good credit-which loan?
There are several options available for people with both good and bad credit. Here are a few loans which often make the mark:
- Secured loans
- Unsecured loans
- Guarantor loans
- Personal loans etc.
If you have a history of good credit then congratulations, you’re out of the woods! You’ll have tons of loan options open for you and the best part is, you wouldn’t even have to suffer from high interest rates. Secured and unsecured loans are the two types which are most recommended and often opted for especially when keeping credit scores in check. Although that may be the case, unsecured loans is something you should really look into if you have a good credit score in your history.
What is unsecured loans?
Of course, before you come to a decision, it’s important to know what exactly the loan you’re going for is. If you’re not really aware of the concept, don’t worry because you’ve come to the right place!
The first thing you should be aware of is that unsecured loans are known as personal or signature loans. So next time you’re asked, don’t be confused about it! Unsecured loans are basically those loans which do not require collateral which means, your creditworthiness is the only thing which will give the lenders a guarantee of receiving their money back. If you choose to be a borrower of unsecured loans then you need to have a certain credit rating to be approved and that rating is usually quite high. The thing is, since there’s no collateral, your lenders still need reassurance and what’s better than a “certification” which proves you financial stability?
How are they different from secured loans?
Since there’s always a debate between secured and unsecured loans, you’re going to have a very hard time deciding between the two. If you have good credit then the better option for you, and what the lenders would often propose, is going for an unsecured loan. Secured loans are basically good for people with bad credit because they require collaterals beforehand. Whether it’s an upfront payment or a property, collaterals are known as the guarantee instead of the credit scores. Of course, there’s more risk to it because if you fail to repay the debts then you lose the collateral.
Unsecured loans on the other hand are free from collaterals but you might have higher interests. It’s still a much better option than risking your personal property though!
What are the types of unsecured loans?
Yes, even unsecured loans can be subcategorised into other types of loans. Just picking a certain type of loan isn’t really enough, you need to know what you’ll be availing from them. Here are a few types of unsecured loans you’ll have to pick from:
· Credit cards
This is a type of unsecured loan because you usually don’t need collateral during purchase. Credit cards work on debts which are usually paid back at a certain date and if failed, can greatly affect your credit worthiness.
· Payday Loans
Payday loans are slowly gaining popularity especially amongst business owners. What a payday loan does is, it allows you to borrow a certain amount which is enough to cover all the expenses until the next pay check arrives. There’s one downside to it though, since it is taken from non business financials, there are very high interest rates applied to it on top of having an incredible transaction fee.
· Student loans
This is usually argued on whether or not it can be categorised as an unsecured loan. This is because it usually doesn’t require the borrower to have a credit history. You need to be quite smart about it as well because the organization you choose to borrow from offers differing interest rates, repayment plans and borrowing periods.
· Term loans
These often use financial institutions to agree upon a specific amount which could be borrowed. It’s discussed beforehand by the lender as well as the borrower and the schedule for repayment discussed. The plus point with terms loans is that they work on instalments which means you don’t have to worry about repaying a large sum all at once. You can break it down to weekly or monthly payments.
There are several other types of loans which unsecured loans offer as well such as personal loans, business loans and even advance cash. However, the ones mentioned above are often referred to by clients who are looking for good lenders for their loans.
Why should you choose unsecured loans?
Every kind of loan is a risk and it’s not only a risk of funds but also on how it could later pose a threat in decreasing your credit score. That’s why you need to be sure you’re making the right decision when choosing unsecured loans. Don’t worry, you’ll be getting nothing but benefits for it, here is why you should opt for unsecured loans:
- You get to borrow large amounts: You read that right! Since unsecured loans are based on your creditworthiness, your lenders are aware of what a good sport you are when it comes to debt repayments. That’s why you get unlimited and high amounts of money to borrow from so, let’s just say that you’re looking into buying a house and you don’t have enough funds. You can always go for an unsecured mortgage and you’ll be good to go!
- No collateral: This part may have been discussed before but it’s just too good to not be discussed again! Usually people are denied loans because they lack properties such as houses, cars, and boats etc. to place as leverage for a loan. With unsecured loans, all you need to worry about is having a good credit score and you’ll have lenders running to you!
- Help your score: Unsecured loans have the ability to increase your credit score or have no effect on it what-so-ever. With some loans you get to face a decline if you fail to adhere to the conditions however, if you make scheduled payments, your credit score could rise up immensely!
- Not that difficult to receive: You usually ask for loans so that you can benefit from it as soon as possible. More often than not, the loan process takes so much time and once you pull through the documentations and requirements, you still have to wait further to receive the cash. Rest assured that with unsecured loans you really wouldn’t have to go through that much trouble! The process is easy and you get the money as soon as you want it.
- Qualification: You can easily qualify for an unsecured loan as long as you have a good financial standing and an even better credit score. Don’t worry, as mentioned, the process isn’t that long and you usually don’t even have to do much for it!
Secured loans isn’t as bad as they say and in the case of a bad credit score, it’s the best option you have but with unsecured loans, you’re in a much safer position. However, it’s a better idea to look into getting a professional to help guide you through the options you should try out.
When should you try for an unsecured loan?
Unsecured loans don’t really have a time period, = but if you’re thinking of using it then you can start by trying it out when you have an excellent credit score. Again, your financial maturity counts for quite a lot when keeping in mind how well you’ll be able to make the repayments.
What you need
Of course you’ll need certain documentations before applying for a loan but don’t worry; you don’t have to go through much trouble. All you need is your credit report, which is a crucial point you should look at. Your lenders will always need to have a look at your credit report because it gives the details of all your transactions. While credit scores give a briefing, credit reports actually give the detailed account of all your transactions and place of stay.
Apart from that, you should look into keeping a close eye on all your documentations including your identifications and financial statements. However, it’s important that you confirm the requirements from the lenders beforehand because each lender will have their own particular set of things they would need to see. Remember, the major thing they look into is the credit report, all the other documentations are secondary.
What if you have bad credit?
Lenders often don’t look into getting people who have bad credit as a suitable candidate for unsecured loans however, you can still opt for other types of loans. It’s important that you work on improving your credit scores because it’s an important factor which would define several other areas of your financial standing in the future. With bad credit you’ll have to suffer from high interest rates and collaterals but at least you get the loan for purchase.
Improving credit scores
Improving your credit scores isn’t really all that difficult as some people might come to believe. All you need is a little bit of dedication and the right guidance and you’ll be good to go. Here are some steps you can follow to improve your credit scores:
· Credit reports
Credit reports are very important and give you an outline of all your transactions. Remember not to ignore your credit report because it could be disastrous. Often credit reports can help you identify any errors made and you can immediately contact the banks and get it corrected. You’ll be surprised how many errors go unnoticed when credit reports are left unchecked.
Make sure you become more responsible and start taking your debts seriously. Make a list of all your pending payments and one by one you can repay them back.
· Don’t close off any accounts!
This is also one of the mistakes that people make. Closing accounts doesn’t usually have any positive effect on the credit score but instead could greatly have negative impacts on it.
These tips have known to work miracles and will definitely help you gain the financial maturity you need. Remember, your credit scores are of topmost importance, especially if you’re looking into getting an unsecured loan. Just make sure you have professional guidance before you make any decision and especially if you’re working on correcting your credit score.