What are Collateral Free Loans?

Indrajit Deshmukh Jan 5, 2019
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There are banks that will grant loans without collateral, if you have a decent credit history. Some private lending institutes will even sanction unsecured loans, despite bad credit history, provided you meet certain requirements.
We all need financial assistance at some point of time in our lives. Some might need it for a medical emergency, while others need it for car repairs or tax payments. Traditional lending organizations like banks offer loans without demanding a collateral, if you have a good credit score. But they turn down the application if your credit history is poor.
Loans which don't require collateral are also known as unsecured loans. Since the lender does not have a guarantee that you will repay the loan, for him, it is a risky proposal.

Unsecured Personal Loans

People generally opt for personal loans without collateral, to pay off their credit card bills or car loan installments. If you have a good credit score, a bank might grant you a no collateral loan and the annual percentage rate (APR) they charge can be very low.
If you have not been able to maintain a good credit score, then you have the option of borrowing from private lending organizations for quick loan approval.
The documentation required for this kind of loan is generally a social security number, proof of steady income, and other financial information. The turnaround time for a personal loan application, with a private lender, can be as less as 24-48 hours.
The sanctioned loan amount can be directly transferred into your bank account, or if you so prefer, can be received as cash in hand. The amount sanctioned is generally low, because unsecured loans are considered to bear high risk.
If you are looking for personal loans and have a bad credit score, be ready to pay high interest rate. One of the options you may opt for is payday loan. They are easy to get, need less documentation, and have quick approval. Repayment periods for these are mostly 2-4 weeks. They are an advance loan on your paycheck with high interest rate for 2-4 weeks.
There are financial institutes which provide no collateral business loans to an already set up business. They generally do not lend money to start-ups. These business loans are sanctioned on the basis of expected sales and do not require business plans for approval.
Eligibility criteria includes the fact that the business should be registered in the United States and you generate a certain amount of revenue (differs from company to company).
These business loans can go up to USD 500,000, depending on the organization. There are flexible payment options available on these loans and the approval time is also less, making them an attractive option for small businesses.
If you are already in debt and are looking for another loan to pay off you earlier loans, and that too without a collateral, it's going to be difficult to find a lending organization that will back you. However, there are some institutes who specialize in providing no collateral debt consolidation loans.
The sanctioned loan amount can vary from USD 5,000 to USD 20,000. Since these are unsecured loans, you will have to pay high interest rates. These loans have low installment payments, but the duration of the loan is very long and they affect your credit score.
In case of unsecured loans, your best bet will be to check finance company sites on the Internet and choose one that's offering the lowest interest rate and minimum processing charges.