Unsecured Bank Loan
An unsecured bank loan can be of great help to someone with good credit who needs cash for various reasons. These lending agreements can be offered to both individuals or to businesses, usually small businesses. But an unsecured bank loan can also become one of the most difficult lending agreements to secure for two reasons. First, the lending agreement is an unsecured type of borrowing instrument which means that there is no collateral being offered in case of default. This leaves the lender in a very precarious position with no leverage and one of the last in line to ever receive payback in the event of the debtor declaring bankruptcy. Second, the lending agreement is be offered by a banking institution, the most conservative of all the loaning entities when it comes to offering lines of credit.
Of all the places to get an unsecured lending agreement, a banking institution offers the lowest priced money a person can ever borrow. There are two main reasons for this truism. First the banking institution, unless privately owned, must answer to stockholders for quarterly profits earnings. Except in the case of a few banks who have been guilty of malfeasance when it comes to issuing risky mortgages for promises of high returns, most stockholders want to know their investment is dealing with low risk borrowers and are willing to take lower returns on their investments rather than take a chance on a high number of defaulted notes. Secondly, a banking institution is responsible for the well being of its depositors' monies. Unlike a lending company who has investors willing to take high risks for high profits, a banking institution realizes an obligation to its customers for the relative safety of their deposits.
So an unsecured bank loan, a relatively high risk transaction, is only offered to creditors with sterling borrowing histories and low debt to income ratios. For the borrowers with those characteristics, the unsecured bank loan decision can be rather sweet. For instance, credit rates for banks who offer these lending agreements can be as low as nine percent. Of course, the interest rates for this kind of lending agreement are variable in nature and not fixed. That means that the payments could possibly go up as economic times often fluctuate. They are sweet because lending companies which open their arms to those with marred credit histories charge as much as twenty eight to thirty percent APR for an unsecured bank loan.
But getting an unsecured bank loan must also come as the result of passing a debt to income ratio scrutinizing process. Having a stellar borrowing history is not enough for the potential borrower. In addition, the borrower must not have too much debt in relation to his income. Even if the borrower has made all debt payments on time, the fact that more than thirty five to forty percent of income is dedicated to debt repayment will be enough to sink the bid to obtain an unsecure bank loan. The Bible declares that financial success in life is not the ultimate achievement for Christians. "For we know that if our earthly house of this tabernacle were dissolved we have a building of God, an house not made with hands, eternal in the heavens." (II Corinthians 5:1)
When a small business seeks an unsecured bank loan, it can be for a number of reasons. For example working lines of credit for the cash needs of small businesses is an unsecured lending need. A banking institution can issue a credit card which is a high interest line of credit. Banks can also issue short commercial loans for one to three years. In all of these cases, the bank is relying on the integrity and signature of the borrower to repay the lending agreement. But to have any of these lending agreements become a reality it is important for the borrower to have done his homework and know his credit score and debt to income ratio before heading to the bank and talking to a loan officer. If a person has no collateral to offer because of high indebtedness, it might be a sign that the borrower should drop the idea of another loan on top of all the others.
But if a person is resolute in securing a lending agreement , there are alternatives to an unsecured bank loan. For example, loan companies are willing to overlook a fair amount of late payments and forty percent or more of debt to income. These lending companies are best found online or even at a local strip mall and often have nationally known names that have been in business for many years. The interest rates will be much higher than a no collateral bank lending agreement would ever be. There may also be some points involved in the agreement. A point represents one percent of the total amount of the lending agreement and if the borrower cannot pay these costs upfront, they are often rolled into the total amount of the loan.
Having made good money decisions earlier in life is key to getting a no collateral lending agreement with a banking institution. Banks are eager to loan money to those who have proven to handle credit in a responsible manner. The beginning of anyone proving credit worthiness is paying off a credit card every month and not carrying a balance, or perhaps making timely payments of a car loan. Making right choices early can save thousands and perhaps tens of thousands of dollars of interest over a lifetime. Just a one percent difference in a good mortgage rate is a huge payoff for earlier fiscal restraint.