Will I Need Collateral for a Personal Loan?

Personal loans are a way for consumers to borrow money quickly. A variety of lenders offer personal loans. Many are given as  unsecured loans or signature loans for a variety of reasons.

Consumers who have a car loan or a mortgage loan are operating within the parameters of a secured loan. These loans are favored by lenders because it has lower risk since there is collateral involved allowing the borrower to have access to the money.

Unsecured Personal loans are also called signature loans. Since there is no collateral involved, the lender determines whether or not to loan you money which is based solely on your credit history and score. That is why it appears that only a signature is needed to contract the loan, hence the nick name.

Unsecured personal loans do not require collateral to borrow money. Many people like these types of loans, as it is low risk for them, but higher risk for the lenders. That is why to secure loans of this nature, banks charge additional fees and higher than average APR rates. This additional cash infusion makes the profits on these types of loans very enticing for banks and lenders in general.

Since most personal loans are unsecured loans, people in the position of needing to use one, need to be extremely educated on the terms of borrowing the money. There are usually fees to borrow the money, fees to pay off the loan, and the accruing interest rates in-between. That is the exchange for not having to provide a lender with collateral.

Unsecured Personal loans are made to consumers in good faith, since there is no collateral involved there is nothing but your pledge to repay the money to offer the lender any security. The person who borrows the money will be fully responsible for paying the money back overtime. If they do not, their credit score will be affected in a negative way.

There are also secured personal loans where collateral is needed. These loans tend to have lower interest rate then unsecured personal loans. You definitely need to weigh the pros and cons of each before signing on the dotted line.