A loan is one of the best inventions that humanity has ever come up with. You might think that it’s something that the banks invented, but this concept has been around for more than six thousand years. As we all know, around 4000 BCE is when the agricultural revolution began.
People realized the power of plants, and they started putting seeds in the land. However, sometimes there were natural disasters, theft, and animals that ate those plants. This led to unequal profits, and that’s how some people got more than others. Click here to read more.
That’s also the time when the first unsecured loans came into play. Essentially, you could borrow seeds from another farmer and then return their initial gift with a bit more. The same thing happened with animals. If someone had a couple of cows, and you had zero, they would give you a newborn calf.
Then, when the calf grows into a cow and gives birth, you could give back the new animal. When you fast forward a couple of thousand years, we get to Ancient Greece, where pawnbrokers realized how to lend money.
The concepts they invented are still widely used today when it comes to secured loans in the business world. Two and a half thousand years after that, we get to this moment where we can use credit cards and computers to secure a loan.
What is an unsecured loan?
The best way to explain complicated business terms is with examples. A few of the most notable examples of this are personal and student loans. This is the riskiest category, and banks and lenders pay careful attention to whom they allow this procedure.
The only thing from the borrower’s side is his credit instead of another asset or property. Let’s take a student loan into consideration. The bank is giving you the money to go to college, which is quite expensive, but then you need to give it all back when you start working in your niche.
They’re making the investment in you, and they give you the monetary motivation to study and get employed. If you don’t repay the money, then you would need to go to court. Every lender goes through the selection process where they think about why they should give you the loan.
If they see that you don’t have a good credit score, they won’t do it. If they do, then there are many laws in place that will backfire on them due to discriminatory practices.
How is that different from a secure one?
When you want to get a secured loan, then you need to put something at stake, such as a house, an apartment, a car, or some other asset. This serves as something that the bank can take if you don’t want to pay back the money they will give you. The best example, in this case, is a mortgage.
You go to a lender and take a loan to buy a house. This agreement is quite long, approximately 30 years. If you don’t pay back all the money plus the interest, you’re not going to be the owner of the house, and the lender is going to take it back.
The main difference between the secured and unsecured versions is the risk of the lender. If they have property to claim, their losses wouldn’t be that great. However, if they can’t claim any kind of asset, then they must take you to court and collect the debt. This can either garnish your wages or put a lien on the home. Plus, that will impact your credit score by a large margin.
What are the pros and cons?
If you’re on the borrowing side, there are more pros than cons in this situation. First of all, you don’t have a lot of risks involved. No one will take your assets. The only thing that will be negatively impacted is your credit score. Furthermore, if you’re a business owner and you filed for this type of loan, then you’re in a better position.
If the business venture fails, you can simply file for bankruptcy, and you won’t have to give back the money. Sure, that will look bad on your credit score too, but at least you won’t be stuck making payments for the rest of your life. The only negative side of this entire procedure is the interest rates.
Since the lender is taking all the risk when they bet on you, they need to have a large enough compensation. Make sure to do a lot of research before you borrow a large sum of money. It might surprise you that putting a house as an asset might cost you less than repaying all those interest rates on an unsecured loan.
Talk with the lender and find the best option—the most important thing to remember that this procedure is based on good faith. The only thing you’re putting down is your signature, and it can be used as an unsecured credit card or a personal or student loan.
How to get one?
When people think of getting a loan, they always think about going to the bank, waiting in line, signing a bunch of paperwork, and then waiting for a couple of days to hear back. With internet banking, this process has been completely simplified.
You can sign up online and do it in a matter of minutes. However, there are still some things to keep in mind before you do so. First of all, you need to check your credit score. It needs to be in the 600+ range, but it would be best if it’s over 700.
There are plenty of websites online that can check your credit score, and it would be wise to do this before you apply. You can go to Billige-forbrukslån to read more. If it’s a bit less than you initially thought, you still have time to improve it before you apply. Next on the list is evaluating your budget.
You can do this by keeping track of all of your expenses and subtracting them from your income. If what’s left at the end of a month is enough to cover the payments, then you can go ahead and do it. Then, make sure that you pay for everything on time.
After you do the calculation, it’s time to look for some lenders. Scout some pages online and fill their calculators to see how the interest applies in your particular case. This will also give you some insight into the APRs and how flexible the payments can be.
When you find a perfect lender, it’s time to get all your documentation in one place. Filling all your tax returns and W-2s will make the process go smoother and faster. Finally, it’s time to send the application. You can do this in person or online.
If you’re accepted, you can get the funding within 24 hours. Of course, all of this is different with different banks or lenders, so make sure you call their customer service to see how everything will work out.
There are many reasons why someone would want a loan, and this will help you get everything ready. Make sure you know all the risks, pros, and cons before you borrow a large sum of money.