Unsecured personal loans are commonly used by millions of people every day. These loans can be found at many lenders, including banks, credit unions, cash advance or payday loan stores and from online websites. One important thing to remember is that there are different types of personal loans available.
The term “unsecured” refers to the fact that there is no collateral required as a back up to the loan in the case of a loan default. If you cannot pay an unsecured personal loan, you are not risking losing personal assets such as your home or vehicle. You can be taken to court under normal legal collection processes. Collection agencies can cause quite a stir and disrupt your life in their efforts to collect a debt.
If you go to a payday loan or cash advance store, you can usually obtain an instant personal loan that is unsecured. They do require that you either leave a personal check behind for the amount of the loan and any fee or interest charged. Online quick cash lenders have you fill out an ACH withdrawal permission form on your application. This allows the online lender to withdraw the due amount on the due date directly and automatically from your bank account. If there are insufficient funds, the transaction is treated like a bad check and they can proceed to legal collection efforts.
Banks and credit unions can offer you unsecured loans also. These are called “signature” loans. The only backing is your promise in good faith to repay the loan in a timely manner and in full including interest charges. But there is no tangible collateral required.
Some online lenders and other financial institutions now offer an unsecured personal loan in the form of installment loans. Again, there is no hard collateral required, just your signature and promise to pay. The same thing would apply here in case of default. They will proceed to legal collection efforts if you cannot repay the loan.
An unsecured personal loan is preferred to a secured loan in most cases. With a “secured” loan, the lender can seize your property and sell it to recoup their loan and fees. They do not have to sell your item at market value either. All they need is to get enough money to pay what you owe to them, so this is a big negative and you could lose your valuable assets.
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