Although lenders view unsecured loans as being incredible risky and therefore make them more expensive to applicants, these loans come with their advantages. The reason behind the hefty interest price tag is that the applicant doesn’t offer any security in the form of collateral. However, there are some cases when a secured loan is too costly, inconvenient or flat out impossible based on the borrower’s situation.
When to consider the pricy loan
Applying for an unsecured line of credit can be very advantageous in certain circumstances. For example, if you rent your own property versus owning you probably don’t have any real collateral and therefore this loan type will best suit your needs. However, if you are a property owner but you are upside-down on your mortgage, you may qualify for an unsecured line of credit.
Perhaps you want to purchase items of small value. If you need a down payment on a car, or perhaps you need to buy a few computers for your business, this option would be ideal.
What you need
When lenders examine you on paper you need to be prepared to prove you are low-risk for defaulting. It can’t come as a surprise but lending institutes will look at your credit history. Not only do you need to show good credit, but you must also demonstrate that your good credit has been continuous without any hiccups.
Lenders will also want to see proof that you have lived at the same residence for a good, substantial time frame, as well as being planted and rooted in a secure job. In other words, they want to see a continuous trend without any fluctuation—as this behavior is indicative to how one would behave in making payments on their loan.
Proving your creditworthiness
You will want to go above and beyond in impressing your lender. In an article on what lenders look for, the author reminds us that lenders need to make money, and while they have the poster-child of borrowers in mind, even they have to compromise. The article says that the trick is to demonstrate using other means. For example, if you are a new business owner, you can demonstrate success in managing a small business. The author says that lending officers might be more agreeable to your application if you can prove you supplement your own experience with that of someone else who has had similar success in the field.
Although your mission is to obtain a loan, you will want to make sure the loan is solid and that you are not at risk of running into disaster. Research the lending institute you are considering. See how many bad loans they have written. This will indicate as to how credible they are, and how they value their clients. You want to make sure that you aren’t just approved for a loan, but that you are entering a bond you can safely pay back and that offers an extremely low chance that, based on your earnings and expenses, you can comfortably pay back. Be smart, and look for a lender who will help you make wise choices.