All About Unsecured Loans

Unsecured loans are loans that do not require collateral. They are sometimes called signature loans because your signature and promise to pay are basically all the lender has.

Your credit score has to be pretty good to acquire this type of loan. They're a higher risk for the lender and so you will likely pay higher interest rates and have a shorter term than with a secured loan.

Credit cards are unsecured and are sometimes misused as loans. You will usually have a long time to pay for purchases made with cards but the interest rates are terrible. It’s best to go to a bank or credit union to borrow money. They will offer much better rates and you will end up paying less in the end.

If you’re just starting out and have no credit or are re-building your credit, financial institutions will often allow someone with good credit to co-sign with you for the loan. This means they agree to be responsible for the loan if you’re unable to pay.

If you pay responsibly, this is a really good way to build your credit. However, before you ask someone to co-sign for you, make sure you have a budget in place and can afford the monthly payments. If you fail to pay, not only will your credit suffer but your relationship with the person who’s left holding the bag will suffer as well.

Often credit unions offer the best rates on these types of loans. However, if you already have an account with a certain bank, they may be your best bet.

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