Understanding Credit Requirements On Unsecured Loans

By Mary Wise

In order to get approved for unsecured loans you can benefit from knowing exactly what requirements you’ll need to meet so as to avoid an unsecured loan decline.

To understand the reasons why most unsecured loans are harder to qualify for than secured loans, it is important that you comprehend the implications of collateral on loans and how they affect the risk variable that defines most loan terms and requirements for all kind of loans. When it comes to any financial transaction, anything that affects the risk involved on it will modify the rest of the variables.

Unsecured Loans Credit Verification

Almost all unsecured loans have credit verifications as a step prior to loan approval. The only loans that do not require credit checks are certain cash advance loans and payday loans.

These loans are indeed unsecured loans but of a very special kind. They only provide small amounts of money that need to be repaid in a short period of time and charge a very high interest rate for the money borrowed. However, you’ll benefit from the fact that they are approved within less than 24 business Hs.

The rest of the unsecured loans require credit checks and ultimately need a good recent credit history for approval. This doesn’t imply that if you have stains on your credit history you won’t be able to get approved. But your recent credit history (the last six months at least) has to be free from critical delinquencies like defaults or bankruptcy.

Consequences of the Lack of Collateral

Collateral offers a lender a guarantee of repayment as the property used as collateral secures the loan with its value. In the event of default, the lender can take legal action directly against the property’s owner to recover his money from the produced of the asset’s sell. This action is known as repossession and is the main reason why most borrowers are afraid of secured loans.

However, the lack of collateral increases the risk on the loan transaction and thus implies harsher credit requirements for the borrower and less advantageous loan terms too. The applicant will need to have a good credit score in order to get approved and must also show proof of a steady source of income to confirm his ability to repay the loan.

Overcoming Credit Requirements

As regards to credit requirements, the need of a good credit score is essential because the lender has no other assurance of repayment than the borrower’s credit behavior. However, these requirements can be bypassed if the applicant offers a co-signer with a suitable credit score and history to reduce the risk involved in the transaction.

The co-signer takes the main applicant’s place in the event of the latter defaulting on the loan. Since the co-signer is also obliged to the loan contract’s terms, he runs the same risks as the main applicant, putting his credit history in jeopardy if he doesn’t resume the loan’s payments when the main applicant misses a payment or two.

Mary Wise, a professional consultant at Badcreditloanservices.com with twenty years in the financial field, prevents consumers from falling into the hands of fraudulent lenders. In her website you will find more useful tips and interesting financial articles on this and many other related topics.

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