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Unsecured Loans vs. Secured Loans: The Basics of Personal Finance

These are hard economic times for everyone. Making ends meet when living paycheck to paycheck is always difficult, but if you’ve lost your job, or had to take a lower-paying job, it can be downright impossible. For many, the need to use loans or credit cards to pay bills, or to cover an emergency medical situation, or even gifts for the holidays has never been greater. Often the quickest way to get the cash you need is with an unsecured loan.

But if you’re anything like a lot of people, you may have had some bad experiences in your past that negatively affects your credit. Perhaps you made some ill-advised purchases as a young kid furnishing your first apartment, or you missed a few payments on your credit card during a lean time. Whatever the reason, if you have a poor credit rating, you’re probably looking for a loan that does not require an in-depth credit check.

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If you’re looking for an unsecured loan without going through the usual process, there are several things you want to keep in mind.

In order to avoid perpetuating the same cycle that caused you to have a poor credit rating in the first place, you’ll need to take certain steps to make things different this time.

Be a smart consumer. Read the fine print of any contract you’re faced with, look out for super-high or variable interest rates, and make sure you’re going to be able to make payments on time.

What Is an Unsecured Loan?

Many lenders offer a loan of this type without the usual verification of the borrower’s past credit history or credit rating. Such background checks can take time, from several days to even weeks, which negates the entire purpose of such emergency loans. Knowing that they have, in effect, a captive audience that requires cash fast, lenders usually charge high interest rates or attach large fees to loans of this type.

Examples of an Unsecured Loan

  • Payday Loans
  • Credit Cards
  • Student Loans
  • Signature Loans (aka: Personal Lending)
  • A Personal Line of Credit (Charge Card)
  • Home Improvement Loans (not all are unsecured)

Examples of a Secured Loan

  • Mortgage Lending
  • Home Equity Lending
  • Car Loans (Both New and Used Vehicles)
  • Boat Loan
  • Recreational Vehicle Loan
  • Tax Refund Loans

Check Your Credit Score

One thing you’ll want to be sure to do before considering an unsecured loan, no credit check is to make sure you need a loan of this type. Your credit score may not be as bad as you think it is. Just because you never paid off the video store for your late fees doesn’t necessarily mean you’re considered a credit risk. There are countless places online where you can check your credit, but many of them charge hidden fees, so be wary.

Watch the Interest Rates

One of the reasons lenders can safely feel free to offer unsecured loans with no credit checks is the high interest rates these loans pretty much always carry. This allows the lender to make a profit even if a good-sized portion of their borrowers default on their loans. These high interest rates are good for the lender but not so great for you, the borrower.

As long as you take the interest rates into account when considering an unsecured loan with no credit check, you should be okay. Always remember that the amount you’ll be paying back will be drastically higher than the amount you’ll be borrowing. While that may be acceptable for instances of, for example, medical emergencies, it may cause you to rethink whether or not you need the loan for something like holiday gifts.

There Are Benefits to You

There are some benefits to an unsecured loan of this type. The most obvious being, if lenders don’t check your credit past, you can still get a loan despite a multitude of credit sins. That flat-screen TV you bought on a whim or the pair of shoes that weren’t on sale will matter a little bit less. In addition, since the loan is unsecured, the lender will not be able to take any of your assets as security or to repossess them if you fail to repay.

However, usually a defaulted loan will cause the lender to charge you penalty interest on top of the already high interest rate the loan originally came with. So, take repayment of your unsecured loan seriously. Failing to make your payments on time or in full could make your financial situation much worse than it already is.

Be an Informed Consumer

Sometimes life creates circumstances when we need cash fast. In situations such as these, an unsecured loan, no credit check, is often the best solution. Just make sure to make a well-informed decision about the loan you are taking out. This is not something to be undertaken lightly, as any problems with a risky loan of this nature can seriously affect your credit in the future.

However, as long as you’re aware of what kind of loan you’re getting, and as long as you make sure to keep up with your payments, an unsecured loan shouldn’t be too much of a problem. Hopefully your financial situation will improve with the help of the cash acquired from your unsecured loan, no credit check.

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