Unsecured Loans

An unsecured loan is a loan issued by a lender without any collateral (security). Unsecured loans are also called unsecured borrowing. The most common form of unsecured lending is credit cards.

Why are lenders offering unsecured loans?

If the loan is secured, the lender’s risk is minimal. One of the safest types of loans for a lender is a mortgage – in case of negligence of the borrower, the lender can take back the apartment purchased. Unsecured loans are a big risk for the lender, because if the borrower does not repay the debt, the lender often loses money.

The main reason why lenders offer unsecured loans in Massachusetts to clients is high competition. The banking industry is a buyer’s market, since if it is necessary to get a loan, a person has the right to choose the most favorable terms from a variety of options. By making the registration procedure as convenient as possible for the borrower (including eliminating the need to provide collateral and attract guarantors), the bank gains a competitive advantage until other market players start to act in the same way.

Features of an unsecured loan

The features of an unsecured loan include the following:

  • terms are always less favorable than for a secured loan: the repayment period is shorter and the interest is higher.
  • unsecured loans require the potential borrower to provide a income certificate. Some institutions can lend without such a certificate, but the interest will be so high that such a loan will be simply unprofitable for the borrower.
  • the amount of an unsecured loan is limited to a fairly low level – the borrower cannot get much money.
  • it is impossible to get a loan without US residence. At the same time, financial institutions are actively lending to citizens with a temporary residence permit, but only for a period not exceeding the period of validity of the temporary residence (usually 3 months).
  • it is also impossible to get an unsecured loan if you have at least a minimal negative credit history. There is enough information about at least one delay, and the bank will refuse but not the lender.
  • the bank may oblige the borrower to purchase an insurance policy along with an unsecured loan, compensating for the excessive risk with extra income.

Benefits for borrowers

The main advantage of an unsecured loan in Boston for a borrower is the speed of processing: it takes a maximum of several hours to get a decision. A secured loan takes more time, as there is a need to assess the collateral. Another advantage is the ability to spend funds at your own discretion, which favorably distinguishes unsecured loans from targeted ones.

The main drawback – high interest rates – the borrower is able to minimase it with the help of a surety. The guarantor can be a relative or friend (or several people) who has a suitable income and an unspoiled credit history.