An unsecured loan basically means that the borrower has not had to give up an asset as a means of ensuring that the lender can give them credit. Assets can include houses, cars, stocks and shares. It is very difficult to get a loan if you do not have an asset because the bank will be taking a huge risk in giving you their money without confirmation that they can have anything back if you become bankrupt. The interest rates that you will get for this credit facility will vary depending on the amount of collateral that you can bring to the table. The higher the value of the total collateral, the lower the annual interest rate that you will be charged. If you have no assets at all then you will be looking for an unsecured loan.
Problems with credit rating
People will often be angry when they are turned down for a loan especially if they have worked very hard to get that loan. There is a sense of disappointment that you have not been given the money. Some people who may have had bad credit decisions such as borrowing on credit cards or being late with their payments will find that they cannot get an unsecured loan. Even if the borrower has only missed one mortgage payment, the bank will take this issue into consideration when they are deciding whether to give them a loan or not.
After the application, the bank will do a credit search with the major credit rating companies such as Experian. All the financial information that is available will be collated in a credit report. The customer has a right to see what is in their credit report but they have to first apply with the credit rating agency. If the bank sees that the risk is too high, they will decline the loan application and inform the borrower. Some banks have a policy of querying individual items that are on the credit report but others will not give the applicant full details of their decision.
The unsecured loan with credit issues
People who have gotten into financial difficulties should not despair that they will never be able to get that unsecured loan. As long as they visit particular lenders who will give them information as to what they need to do, they have a very good chance of getting an unsecured loan. The interest rate might be higher than normal and the customers may be given a very strict payment schedule but at least they will be able to have the credit line that they applied for, despite their credit issues.