An unsecured loan means a loan without any mortgage. There is no security deposit to get such kind of loan. It is always difficult to get loans when you try to get a loan after being a defaulter. The credit score goes low and since the banks give loans seeing the credit score, the chances of getting loans to go negative. Mostly the unsecured bad credit loans are personal loans that people take when they are in distress. The bank cannot trust the defaulters and hence they are forced to take money from the microfinance or non-banking sectors at a much higher rate. The first thing a borrower should know is that a credit score of less than 624 is called a bad credit score and a score between 625 to 749 is a fair credit score. The credit score above 750 is a good credit score and above 800 is considered to be an excellent credit score.
Reasons for Low Credit Score
We normally have a low credit score for the following reasons:
- When bills are not paid in time or not paid at all.
- When EMIs (Equated Monthly Installments) are not paid or not paid in time.
- When credit card bills are not paid.
- A person who has never taken a loan before and is not even in a financial position to take one.
Unsecured Bad Credit Loans should be Only Taken in these Situations
- The borrower is a former defaulter in other loans. Even a defaulter in a credit card is taken seriously by the banks.
- All the lenders have rejected his loan application form due to a low credit score or CIBIL score.
- The borrower is in a position to repay the loans and make his credit score high. Otherwise, he will be buried deep down under the debts from where he will never be able to return.
- There is no other way the borrower can manage current debts or the present situation.
Advantages of Opting for an Unsecured Credit Loan
- The borrower doesn’t need to show his credit score.
- The approval time taken is very less and the other normal secured and unsecured loans.
- A higher loan amount can be borrowed if persuaded to the lenders properly.
- The loan repayment time is flexible. It depends upon the comfort of the lender.
- No credit loan requires very little paperwork and documentation.
- Generally, collateral is not required in these kinds of loans.
- There is no risk for giving away the possession of an asset.
- It helps the borrower when every lender turns back on him.
- Gives a chance to make the credit score high with the repayment of a no credit loan.
- The interest rates are fixed and not floating. Hence, even if the rate of interest increases the borrower will pay the interest that was said during the loan disbursal.
Disadvantages of Opting for an Unsecured Credit Loan
- Since the unsecured loans will be disbursed without any sort of collateral, the lender is most likely to keep unfavorable conditions that the borrower will be forced to accept in order to get the loans.
- The loan is given without checking the credit score and documents. So, the rate of interest is high.
- The time given for the repayment of the loan is generally very less.
- The loan amount is very less compared to the loans from the proper banking sectors.
- US citizen.
- Social security number.
- Above 18 years of age.
- A salaried or self-employed person proof.
- Eligibility proof that the borrower will be able to pay the loan installments in time.