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Unsecured Loans

Unsecured loans can be described as loans that are given to borrowers without any form of collateral or guarantee attached to the loan.

Instead of a collateral, what is depended on by the lenders is how creditworthy the borrower is.

Being creditworthy is therefore considered as some sort of ‘collateral’ to the lenders who receive your application for a loan.

Having high credit ratings is a plus to the borrower who is seeking to get unsecured loans.

Signature loans: Signature because once you append your signature that is considered as your pledge to the loan.

Personal loans are also other names that refer to unsecured loans.

How Different Are Secured Loans From Unsecured Loans.

All types of unsecured loans are in complete opposite of secured loans which have collaterals or guarantees attached to the loan.

The banks or non-bank organizations that grant secured loans use the collaterals to help absorb any kind of loss that might occur in case of any default.

Due to the high risk that is typically associated with unsecured loans, lenders who grant unsecured loans give it at a very high-interest rate.

Whereas the secured loans lenders can easily seize the collaterals provided by the borrowers and sell them in case of payment default.

With unsecured loans, lenders have nothing to fall on immediately.

What lenders will eventually do is to contact collection agencies. If that fails they might end up in court hoping for the courts to rule in their favour.

High-Interest rates for unsecured loans

The interest rates which are high with unsecured loans are communicated to borrowers who seek unsecured loans in the agreement forms.

Borrowers sign before the loan is given them.

In very few instances when unsecured loans are being given to borrowers with bad credit history, lenders ask for one more signatory to the loan form. This is to ensure that the borrower sticks to the agreement plan since by defaulting the other signatory will be fallen on to pay back the unsecured loan.

When it comes to unsecured loans, there is no restriction as to what the unsecured loans will be used for by the borrower.

The lender is not strict about the use of the unsecured loans as compared to other loans such as a mortgage loan or a housing loan.

Some borrowers go for unsecured loans to start their own business.

Others also go for unsecured loans to pay off previously borrowed loans so as to get one unsecured loan to concentrate on.

Which Lender Should I Get An Unsecured Loan From?

When choosing a lender for unsecured loans, a borrower must make sure to read and understand all the terms and conditions attached to the unsecured loan they are going for. 

If you choose a lender who cannot give enough money to sort out your specific need, then the reason for going for the unsecured loan will be defeated.

There are several alternative lenders on the market or online who are willing to give borrowers unsecured loans. Some are even willing to tailor the unsecured loans to meet borrower’s needs.

Alternative Lenders Who Give Unsecured Loans

Traditional banks and other financial institutions do not offer unsecured loans. They hardly offer such services to their customers. This is because employees of banks and other institutions are trained to protect the money and unsecured loans are too risky.

This is where alternative lenders come in with their offers to give borrowers loans without collaterals. The comprehensive name used is “alternative”. This is  because there is an extensive pool of lenders who grant loans outside of the normal loans given by the traditional banks.

When the traditional banks and financial institutions refuse to give a loan to a borrower, borrowers then run to these alternative lenders for their loan needs.

Generally, the alternative lenders are flexible with their requirements.

Well Established Alternative Lenders

Although they are an alternative choice due to the banks not being able to satisfy all the needs of borrowers. Alternative lenders are well established and have very well respected individuals who know the financial industry quite well.

Apart from wanting to meet the borrower’s needs, the alternative lenders who grant unsecured loans also make enough money from their borrowers because of their high-interest rates.

Alternative lenders fill the hole created by the traditional banks. So in as much as they are expensive, borrowers go to them for unsecured loans to improve their daily lives.

Types of unsecured loans

There is a wide range of unsecured loans on the market. Here are a few that are commonly known to borrowers.

• Credit cards

• Personal loans

• Student loans

• Personal lines of credit

Credit cards

Basically, a credit card is a card that has money on it and can be used by the holder to purchase services and items. The money on the card has a specified amount on it with a limit which is the highest amount the lender will give the bearer of the card.

So the credit card holder can use up the money on the card but must pay up before they can get another batch of credit put on the card. This type of unsecured loans is quite popular with borrowers because its like borrowing money from the bank.

What borrowers need to ask before going for a credit card which is also an unsecured loan is ; 1. Will  I be paying interest on it?  2. If yes, what is the percentage?

Before going for a credit card unsecured loan, you should know what you are going in for. Not understanding it can land you in more debt.

Unsecured Loans Infographic

Advantages and disadvantages of credit cards

A few advantages are: Carrying cash around is becoming a thing of the past. Holding a credit card is more secure, convenient, safe and easy to carry around.

Using a credit card usefully and wisely will build your credit history and you can use that credit report to get a bigger loan in the future.

There are a few perks when you use a credit card such as getting a percentage back on all your purchases.

A few disadvantages are: It is so easy to overspend when it comes to credit cards because of the ease of use.

Missing out on payment can spell doom for your credit report.


Paying your credit card balance in full at the end of the month is a good way to avoid interest on your card.

Some cards have credit rewards on them so paying on time you qualify for the reward such as airline miles or cash.

A bank issues a credit card and they determine the interest rate and anything associated with the card.

It is also important to note that, when you have a good credit rating the card you qualify for is better than someone who has bad credit.

Also one qualifies for all the goodies on a credit card when his or her credit is great.

How credit card companies make money

Companies that give credit cards make money in three major ways.

Fees These are monies collected from clients for the late payments made by the bearer of the card and also annual fees charged on the credit card.

Interest payments When you make early or on-time payments on your card you can avoid this. But when you don’t pay your credit card debt in full, interest is paid on it and the interest rate is usually very high.

Transaction fees Since most people normally use the credit on their cards in bits, a charge is made on every use of the card. This charge is sent directly to the bank where you got your credit card from.

Personal loans

Another name normally used for personal loans are unsecured loans. This is because you don’t need a collateral or guarantee to get access to personal or unsecured loans.

The lender can therefore only get back their monies through debt collecting agencies or through the courts.

One of the reasons why it’s difficult to get unsecured loans from banks.

One of the loans you can get from the traditional banks and financial institutions.

The unsecured loans can be used as one pleases, however the only catch to unsecured loans is that to qualify for it through the banks your credit must be good.

Those who have bad credit find it extremely difficult to access unsecured loans from the traditional banks and financial institutions.

Sometimes borrowers with bad credit who also have no collateral are given unsecured loans at the lenders’ own risk.

What you need to understand about unsecured loans

Now you can understand why the unsecured loans are more expensive. Due to high-interest rates, no collateral is available to fall on.

These traditional banks are high on avoiding risk and protecting their monies so they will rather have a collateral from the borrower.

Because for the traditional banks or lender, the money borrowed can easily be recouped from selling the asset or collateral taken from the borrower in case of default.

Personal or unsecured loans have fixed amounts and the amount reduces when you make repayments until you are done paying.

The amount you qualify for is mostly dependent on your income, your capacity to pay, your credit score etc.

For a higher amount your credit score must very good, also payments on your credit cards must be on time. Another factor the lenders consider is how high your income is.

Advantages of personal or unsecured loans

• The Unsecured loans are obtained without having to bring any form of collateral.

• Your bad credit history is not used against you when borrowing unsecured loans from private lenders.

• Getting unsecured loans from a lender is easier compared to a secured loan from the traditional banks.

• In case of default, your assets will not be confiscated immediately as with a secured loan which has that stated in the agreement.

• Your assets be it a car or house won’t be lost in case of default.

Disadvantages of personal or unsecured loans

• Unsecured loans have high-interest rate and the simple reason is that there is no collateral put in place of the loan.

• The money you end up paying is almost twice the amount borrowed because of the high-interest rate.

• Amount normally given for unsecured loans are smaller as compared to secured loans.

• With unsecured loans when you agree to the terms, you cannot adjust the payment during the tenure. This sometimes proves to be a challenge for some borrowers who go for unsecured loans.

Students loan/Unsecured student loans

This type of unsecured loans can best or simply describe as loans offered to students. Most of the student’s loans available have good interest rates, to make it easy for students to pay back.

Choosing the college you want to attend is one of the decisions you make when growing up.

Deciding to take a student loan is another major decision in the life of a student. In fact, taking a student loan is the very first decision one can take with regards to his or her finances.

Students loans are given to students before they start college to help support their expenses entering college.

With that said the decision is major and must be done with care since such major decision can help push you towards the right direction or not.

The loan is given on the basis that the student will use the loan for such things as school fees, room and boarding fees, tuition fees and books etc.

The financial aid of the student’s school receives the loan on behalf of the student. He or she can go and collect a cheque from the office or the loan will be put in the bank account of the student.

The good side to a student loan

With a student loan, apart from it being an unsecured loan, it has features that are not seen in the normal types of loans.

Unsecured Loans

Student loans have grace periods, most times interest rates are subsidized, and repaying student loans are very flexible compared to the normal loans.

The only glitch is that you have to be a student, which is very understandable.

As soon as you have the money you can immediately use it for the above-stated reasons for going for a student loan.

Students are not required to repay the loan when in school. However, after completion of college, it is expected that at least six months after completion, the student will be employed or doing something beneficial to be able to pay back the loan.

Mode of payment is in the agreement of the loan. Students are therefore required to go by those agreements.

Advantages and Disadvantages of students loans

Advantages: The basic advantage of a student loan is that you get the amount of money you need to pay all your expenses regarding college without stress.
Another good thing about the student loan is that you don’t have to think of repayments until after school.

Which is such a relief for students and also enables them to concentrate on their studies. Fortunately for students, the interest rates on the student’s loans are much lower as compared to the normal loan rates.

Disadvantages: Prime disadvantage of a student loan is that you already owe before you are out of school.

Another downside of a student loan is that there is interest on this loan no matter how low it is.

Getting a student loan is a helpful way to get through college. But to make that decision to go for a student loan and where to go for it, the student must make sure with the help of guardians or parents that it is the best decision take.

However if by any chance parents or guardians can afford to pay for the student to go through college, then taking a student loan will not be the best decision.

Personal lines of credit

A personal line of credit is a type of loan which has similar traits like the credit card.

You can get access from time to time from writing a particular cheque or calling to ask for funds to be transferred to your account.

Another way to request is to do it online.

As with a credit card, a personal line of credit has a credit limit and a bill is sent to you monthly on your monetary request.

For a personal line of credit to be considered to be good, you will need to pay at least half of the amount you requested at the end of the month.

A consumer with a personal line of credit, will have to pay interest only on the amount he or she spent.

So it will be in the interest of the consumer to pay about half or more of money spent to reduce the amount to be paid with regards to interest.

The consumer must also be aware that each time a private line of credit is used, an amount of money is charged for usage.

To be able to qualify for a personal line of credit, you must have an account with a Bank. Banks are the main organizations that grant personal lines of credit.

A good credit report is also another important factor to qualify for a personal line of credit. Personal lines of credit are also types of unsecured loans.

A Personal Line Of Credit Works Like This:

A consumer or borrower can access the money over time. The lender gives you access to the amount up to a certain limit which is approved beforehand.

With normal unsecured loans, you can withdraw the whole amount approved by the lender. But that is not the case with a personal line of credit.

With this type of unsecured loans, you access the money over a period of time and as and when you need the money.

You are required to pay an annual fee, which is compulsory whether you use up the money you requested for or not.

One advantage of the personal line of credit is the interest rates are lower than that of the credit cards.

Advantages of personal lines of credit

• Knowing you have an amount secured for any emergency gives the consumer a relief.

• Can be used as a backup, when your salary delays.

• You only pay interest on the amount you spend and not on the full amount given.

• Businesses who want to avoid credit card charges may give you a discount because you can write cheques for them.

Disadvantages of personal lines of credit

• You end up paying a fee for having the personal loan of credit even when you don’t use the amount granted.

• If you have the habit of overspending, this personal line of credit can make you overspend, because you can easily access it.

• The interest rates for a personal line of credit are much higher than the normal secured loans which have collaterals.

To Conclude 

Unsecured loans have been of great help to most borrowers over the years.

Its flexibility and fast processing time have made it a choice for most borrowers who don’t have properties to secure loans.

Even with paying higher interest rates, unsecured loans help borrowers build their credit history so they can qualify for better loans in the future.

With unsecured loans now being popular having a bad credit history hasn’t been as scary as it used to be in the past.

At least taking a small unsecured loan and paying on time can help work your credit report to a much higher score.

However, in as much as unsecured loans are helpful, they can also put you in a lot of debt.

Before you decide to go for an unsecured loan think through thoroughly and have plans on how to manage it.

Disclaimer: All loans offered through this website are subject to credit and underwriting approval. is a lead referral company, not a lender. AfterLoans only works with financial service providers that adhere to Canadian laws and regulations. You can borrow up to $20000. Loans amortization is between 6-36 months. APRs range from 19.99% to 55%. The actual APR charged will depend on the lender’s assessment of your credit profile. For example, on a $1000 loan borrowed for 12 months at 29.9%, the monthly payment will be $97.24; with a total repayment, including interest, of $1166.88 There is also lender’s optional loan protection policy. In the event of a missed payment an insufficient funds fee of around 45$ may be charged (dependent on the lender). If you default on your loan payment plan the lender may terminate the plan and the remaining balance will become payable immediately. Our lenders employ fair debt collection practices, but will pursue the payment of Outstanding debts to the full extent that Canadian law allows.