What are Unsecured Personal Loans and How do They Work?

Personal Loan

In most European countries, applying for a loan and being approved is a quick and easy process that can be completed online. Unsecured personal loans might sound risky and not advantageous from a consumer perspective, but this does not necessarily need to be the case. Unsecured personal loans have many application scenarios and are one of the most common ways that consumers borrow money. This article aims to provide a brief rundown of what these types of loans are, and how they work in practice. There are currently multiple options for consumers, with everything from student loans to legit loans with same-day funding available to those who need some extra disposable income. 

What types of loans are classified as unsecured personal loans? 

Unsecured personal loans are in reality a more technical term for loans that are given without any form of collateral. Instead of relying on the assets of a borrower as security, lenders approve unsecured loans based on borrower creditworthiness. In other words, it gets approved or denied based solely on the credit score of the applicant. Your credit score can often now be checked for free by a bank without the check itself affecting your score (which was often not the case in the past).

One of the most common forms of unsecured personal loans that exist today is credit cards. Credit cards have always been extremely popular in the US, but are starting to gain more and more traction in Europe. Credit cards can either be issued by a bank or by a credit company, but work in the same basic way regardless of what issuer is chosen. Credit cards offer a lot of flexibility for consumers, but need to be treated responsibly by both the issuer and the user. With one or more credit cards, there is always a risk of a debt spiral occurring, so it is absolutely essential to ensure you do not borrow more than it is possible to pay back.  

Are these loans easy to acquire? 

Broadly, these types of loans and credit cards are relatively easy to get approved. However, since no collateral needs to be posted, the lenders still perform a number of checks prior to granting you the loan or credit card. However, when it comes to applying, the process is relatively simple. In most cases, a potential borrower can simply visit the website of the lender and fill out an online form – this might take up to 30 minutes, depending on the amount of information that is required. After the application is received, a credit check is performed by the lender, with approval or denial arriving by e-mail within a matter of working days. 

A credit check is customary 

Before a loanee can be approved for the loan or the credit card they have applied for, most European countries require the lender to perform a credit check. As previously mentioned, due to the absence of any collateral requirements, this is a crucial step for the loan companies or the bank to ensure that the loanee is trustworthy and can make the repayments, and on time. However, a bad credit score does not necessarily mean that the loan will be denied; there are several lenders that often offer approval for a loan with less-than-optimal credit scores. However, these loans often come with grossly-inflated interest rates, so these must applied for with relative caution. 

Co-signing does not mean that the loan is secured

Having a co-signer on a loan can increase the chances of a loanee getting approved; however, this does not translate to the loan being secured. If the loanee defaults on payments or is unable to repay at the rate that was agreed upon, the co-signer will be liable for repayment. All of the same rules and methods still apply to these credit cards, but it is easy to overlook the fact that they are actually just another form of loan. 

Researching the lender is vital 

As these types of loans are relatively to get approval for, it is of utmost importance that the loanee researches all possible options available to them. This has led to several European countries seeing a new niche in consumer marketing and consumer information present itself. For example, when looking at countries like Sweden or Norway, there are not only banks that offer these kinds of loans, but also a myriad of private loan companies also offering borrowing opportunities. With such a massive amount of possibility to choose from, consumers can quickly feel overwhelmed. However, there are a large number of websites and companies that help consumers systematically compare multiple lenders and their rates across the board. This has become an invaluable resource for those who might be less financially savvy, or for those just looking to find the best possible deal for themselves.

Disclaimer: This article contains sponsored marketing content. It is intended for promotional purposes and should not be considered as an endorsement or recommendation by our website. Readers are encouraged to conduct their own research and exercise their own judgment before making any decisions based on the information provided in this article.

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