Unsecured Loans Are Possibly One Of The Earliest Forms Of Loans

Unsecured loans are not
provided based on any type of collateral; rather they are based
solely on the lenders belief that the borrower has the ability
to pay. In an unsecured loan the lender is taking most of the
risk as he or she is counting on the borrower to repay according
to the terms of the loan. A secured loan is just the opposite,
the borrower provides some type of collateral to basically
assure the lender that even if they do not pay the loan as per
the terms, the lender will still have the collateral which will
be equal or greater in value than the loan itself.
Credit cards are the most common example of unsecured loans. The
credit card company provides you with access to specific amounts
of credit and in return you are able to buy items with the credit. If you don't pay the monthly bill, the credit card
company is not able to simply come and get the items you
purchased, all they can do is go through a legal proceeding to
try to recoup their losses. Of course unsecured loans such as
credit cards charge all borrowers higher interest rates to make
up for the people that don't pay.
Typically people with good or high credit scores are more likely
to qualify for an unsecured loan. Those individuals with bad
credit or a poor history of making payments are far less likely
to either qualify for unsecured loans or be able to get an
unsecured loan at a reasonable interest rate. Think of unsecured
loans as personal loans, which will help make sense of why some
people are more likely to qualify than others. In all reputable
loan companies your credit report will be pulled and reviewed,
so being honest on the loan application is important. Know what
your credit score is before applying for a loan to better
understand your position with regards to getting a loan.