When applying for a loan, there are slightly different types of loans that you can apply for. One of these is a unsecured bank loan. What a bank loan without collateral really is can be read below. You can also find links to banks that offer this type of loan a little further down the page. We have also included the interest rates they charge for a loan of this type.
Bank loans without collateral – What is collateral?
When you read that a bank loan is unsecured, it sounds a little dangerous. Now, however, it is not that dangerous really, but it is more that you have chosen a little unfortunate word choice. This type of loan also has several names and you may have instead come across private loans or blank loans which are exactly the same form of loan, only the name differs.
Security means that as a borrower you do not have to offer the lender something that they can repay if you are unable to repay your debt. This means that there are no major differences in having a bank loan that is unsecured against one that is collateral if you only repay as you should.
As an example of a loan with collateral, you can mention a mortgage where you have your house as collateral. This means that the bank can demand that the house be sold if the repayments are not followed properly and that the money from this goes to repay the loan. Now, of course, one hopes that this never happens.
What then is the difference between a loan with a collateral and one without?
The disadvantage of a unsecured loan is that you as a borrower often have to pay a slightly higher interest rate. The reason for this is that the lenders may not feel as confident about getting their money back. If you take out a loan with no collateral and are unable to repay, the bank risks losing all your money. Therefore, to protect themselves from this, they usually charge a slightly higher interest rate on bank loans without collateral.
The high interest rate for a loan is determined by many different factors. For example, a larger loan almost always has a lower interest rate and even if you choose a longer repayment period it can affect. Then also affect how your finances look as lenders often set interest rates individually. A loan applicant who then has a strong economy can in all likelihood also get a lower interest rate level and then on the contrary for someone with a poorer economy.
Bank loans without collateral – How much can you borrow?
Most often when you talk about a bank loan without collateral, you think of an ordinary private loan. A private loan means that you can normally borrow between USD 10,000 and USD 350,000. You can choose the repayment period yourself and the choice is normally between 1 – 12 years.
Another type of unsecured loan is micro-loans, which can also be included here. However, it is not the micro-loan that you usually talk about when you think of bank loans without collateral.
If you want to read more about micro-loans, you can do this instead.