Personal Loans – Generalities
Personal unsecured loans do not require the borrower to pledge any of his property to the lender, as opposed to secured loans that do need collateral for approval. The only thing the client is rated upon is his credit rating. Yet these types of loans are harder to get because the absence of collateral generates a higher risk for the lender. In some cases, not even the borrower’s credit score is required. If a person borrows money from a friend or family member, then the only thing that is taken into account by the lender is friendship, which is also the only thing at stake in case the borrower fails to return the money after the pre-established time period. So, in conclusion, an unsecured loan will usually by the borrower’s good name or, in the event that a financial institution is the lender, the borrower’s payment history.
Unsecured loans may come in one of three forms. The first type would be the personal unsecured loan, in which the borrower is personally responsible for the repayment. The second type is an unsecured business loan, which makes the borrower’s business responsible for the loan. And the third type, which is also a business loan, is with the borrower being individually responsible for the loan.
Because unsecured loans do not need any collateral, the lender may have difficulties in getting his money back in case the borrower doesn’t pay back on time, or doesn’t repay the money at all. Also, the lender may have to enforce tighter rules. But, in most situations, the borrower’s current credit and history of debt are verified before any loan is approved. A loan can be denied if the lender thinks that a potential borrower presents too much of a risk because of credit history and/or debt.
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