How Unsecured Personal Loans Work

sharewhatyouknow eraoflightdotcomWhen you don’t have enough credit to fulfill your financial needs, you need monetary assistance and, in that case, you apply for a loan either from a bank, credit issuing companies or from your peeps. There are two types of loans: it can be secured and unsecured. A secured loan is a credit that is secured against the borrower’s security and borrower mortgages his property or any other asset. The other type is unsecured loan which is not secured against security. You are granted a loan depending on your credit history.

There are many types of unsecured loans:

1.Credit cards

2.Personal loans

3.Bank overdrafts

4.Corporate bonds

5.Peer-to-peer landings

A personal loan is one of the unsecured loans that an individual takes to fulfill his personal financial needs. It is not collateral. It contains a higher rate of interest and you have to repay it over a fixed period of time and if in case you cannot repay the loan, the lender cannot take into possession any of your assets.

Personal loan, an individual takes it to fulfill his dreams or for the sake of a short or long-term project. It is a kind of flexibility given to individuals if they want minor capital to start a new venture. It can also be taken for buying a car, vacation purpose, wedding, renovation of your house or to cover an unexpected cost. One of the types of personal loans is signature loans that require only the signature of the borrower and he promises to repay it after a fixed period of time decided between them. It is not collateral. The bank grants this loan depending upon your current financial scenario or any credit history. The other types of unsecured personal loans are a personal line of credit, credit cards as a loan, peer to peer loan and student loan.

Let’s take a look how personal loan works:

Figuring out one from types of unsecured personal loan

The initial step involves what kind of unsecured personal loan suits your requirement either you need a signature loan or the others mentioned above. The signature loan as the name shows only contains a signature and a promise to repay. In the Personal line of credit, the bank will approve a certain amount for you instead of approving the whole amount. And in credit cards as a loan, initially, you don’t acquire the entire amount of the loan, instead you borrow the required amount at any time. And if you need more than you have in your account, you can also exceed your credit limit. And the case of peer to peer loans, you can borrow finance from any individual including your peeps and relatives without any interference from financial institutions.

Fulfill eligibility criteria or not

The next step involves checking eligibility criteria whether you are eligible to apply for such credit or not. If you are not eligible then don’t waste your time in searching out for. Your lender will check your current situation or any credit history (regarding loans) and either you have timely repaid your loan or not previously. The lender will also confirm your age, whether you reach your age of majority or not. Either you are employed or not.

Filing Source documents

After you satisfy the eligibility criteria now your lender may ask you to file and submit the documents for proof. He may ask you to submit:

1.Balance sheet

2.Income statement

3.Other utility bills

4.Certificate of citizenship

5.Source documents for the existence of assets

6.Tax returns

7.Document of credit loan history

8.Certificate of assurance

Approved or not

After fulfilling eligibility criteria and filing the documents it’s time to wait for the approval. The bank or credit institution will cross check all your documents. They will send your documents to the relevant head office to cross check them if there is any fake document or not. They will check your NTN number and will send notifications to the bank, whose bank statement you have attached and within some days they will confirm whether they will grant loan to you or not.

Fund receiving process

If the pre-mentioned steps satisfy the bank’s requirements now the bank will grant a loan. You can take the loan in several ways. You can ask your lender to transfer it directly to your bank account or in case the loan is granted for particular purposes, pass it on to the mentioned authorities.

Repayment and interest rate schedule

While handing over or transferring a loan, the lender or the borrower will have a detailed meeting on repayment and interest rate depending upon your loan type either you will pay monthly, quarterly, semi-annually or annually. There will be a proper schedule designed for repayments. You may decide with your lender, how much and when you will pay if you have good terms with him.

Closure of contract

Now it’s time for the final installment and closure of the credit contract between borrower and lender. You will timely repay all installments; interest attached and ends it with good terms. In the end you will ask your lender to issue a certificate of assurance that you are a good payer.

It’s the best way to make your dreams come true if you don’t have enough credit in your pocket. If you are a good payer and your credit past is effective as well every bank and the financial institution will welcome you to take this initiative. If you follow the right steps, you can easily apply for unsecured personal loans from your desired financial institution.