Obtaining Loans Without Collateral
There are many different types of loans available to consumers some of which are called loans without collateral
. The opposite of this type of loan would be loans with collateral. Sometimes loans without collateral are called signature loans because you obtain them solely on your good name and the lender does not take any collateral.
An example of a collateral loan is a car loan. The car dealer sells you a car and you purchase this car by securing a loan from the dealer. You do not actually own that car until you have paid the dealer in full for that car. In fact you are listed as the owner on the title however below your name on the vehicle title is an area that lists, in this case, the car company or lender you bought the car from, as the Security Interest Holder. In other words the lender is the lien holder on the vehicle and will only release their security interest in the car when it is paid for in full. They have taken your vehicle as collateral for lending you the money to purchase it.
If you get loans without collateral that means you have offered no security in exchange for the loan. This type of loan will usually have a higher interest rate because when the lender has no security or collateral they have nothing to take back if you default on the loan. You will obtain this type of loan when you have excellent credit.
If you are a good customer of a financial institution you probably can go into your bank and visit your favorite loan officer and ask for an unsecured loan. Depending on the relationship with the loan officer you may get approved for that loan. If you are a customer of a trust department of a bank then you have an established relationship with the bank and you may be approved for an unsecured loan. However, even the trust department may ask for some form of collateral. If you have some high dollar art work or first edition books they may take those as security for the loan they offer you. You should be aware that this loan will have a short repayment date, generally not over a year in length. Of course of you still need that loan after a year and you still have a good relationship with the bank you may be able to roll over that loan for another year. Sometimes though, they may have you turn it into a consumer loan with a fixed interest rate or even a balloon payment at the end.
It is not always easy to secure loans without collateral but you may be able to find one if you have very good credit and own your home. But you may be offered a home equity loan instead which you would pay off over time. A home equity loan will generally have a decent interest rate for you but with monthly payments.
by: John Miler
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