An unsecured loan comes in handy in case of an emergency or when you need a financial boost to handle a certain project. You don’t have to provide the lender with any collateral to secure this loan. That being said, the lender has to perform a deep dive into your financial history and see if you have a good credit score, since a loan may affect your score. Only when you have a credit score deemed as healthy can you secure such a loan from the lender.
With a low score, you can get your loan application denied because you haven’t proven that you can pay it back. Even if the lender loans you the money with low scores, you notice the percentage of interest charged on it is very high and the duration of paying it back is short. When you have a high score and have worked with the lender before, you’re in a better position to get a larger loan amount, lower interest rate, and increase duration when you have to pay it back.
Before you go and fill out those forms to get an unsecured loan, you need to consider some factors and determine whether you need it or not. Learn more about Does a loan negatively impact your credit score.
Factors to Consider Before Getting an Unsecured Loan
1. Source of Income
When giving a loan, the lender inquires what you do for a living. This helps them in figuring how much to loan you and at what interest rate? Some occupations are preferred by lenders and can get you a large amount in terms of unsecured loans. Civil servants are viewed as having stable jobs by the lenders and have their loans processed fast.
Your occupation matters because it helps the lender determine if you can pay back the loan or not. Your income is considered as well because you have to make monthly payments to the bank. You require a payslip or bank statement as proof that you are capable of meeting the monthly payments. If not then the loan amount is either reduced or denied altogether.
2. Credit History and Score
With an unsecured loan, the lender doesn’t require any collateral from you but they still need an assurance you can pay back the loan. This is when they perform a deep dive into your financial history. From the information obtained, they get to evaluate your credit history and view your current credit score.
If your history proves you pay back your loans on time, then you can get a loan at good interest rates and payment period. This is boosted immensely by a high credit score. The opposite where you have a poor credit history and low scores mean you get a loan with a high-interest rate and short duration of payment.
3. Interest Rate
It’s not only the lender that has to consider certain factors before giving you a loan you should also do. When applying for a loan, it’s advisable to shop around and identify the best lender to work with. Some favorable lenders charge a good interest rate and others who have a high-interest rate attached to unsecured loans.
You should assess and get a good lender with an interest rate that won’t result in a financial burden for you. A high interest rate means you pay back much more money than borrowed.
4. Payment Duration
Another factor for you to keep in mind is the time given by the lender for you to pay back the loan. Is it favorable to you or not? Lenders tend to give borrowers little time to pay back an unsecured loan even when charging a high-interest rate. Have a plan in mind before you go out and apply for this loan. How much can you pay comfortably per month and for how long? With this, you get to look around for the best lender to work with.
5. Flexible Payment Options
The truth is even when confident enough on your ability to pay back the loan, tomorrow is unforeseen. You need to have an open conversation with your lender on the flexibility of your payment. Are they willing to assist you in one way or the other in case you miss a payment or run into tough times? Some lenders agree to push a payment to the next month giving you time to sort out the matter.
6. Purpose of the Loan
Why do you need to take an unsecured loan? Is the reason legitimate or you can wait and save for it. Remember a loan is expensive because you have to pay back more than you borrowed. Also, when you attach a loan to your monthly income, you end up taking home less than before because installments deducted from your pay. Learn about some Advantages and Disadvantages of Unsecured Loans.
Have a serious reason for taking a loan and not to go on vacation. It should be a situation in which you can’t find another option to obtain money. Avoid using a loan to pay back another loan for this only plunge you into more debt and starts a vicious cycle.
7. History with the Lender
The best lender to approach for an unsecured loan is the one you’ve had previous interactions with. You can even opt to approach your bank where you get your salary or deposit proceeds from your business. Since they know you and have related to you before, you stand a chance of getting a loan processed fast and at a favorable interest rate. A new lender may be tougher to deal with because you share no history.
Best Unsecured Loans 2020
It’s essential to consider the factors listed above before you apply for the loans listed here.
1. AVANT
Avant is a lender that you can consider to get an unsecured loan if you have low credit since the credit score needed is 580. They can lend up to $35000 which you should pay back with an interest rate that starts at 9.95%. The duration is 2 to 5 years.
Pros
- Low credit score required
- Good interest rate as compared to other lenders
- Good processing time for the loan
- Suitable payment duration
Cons
- Small maximum loan limit
- Additional fees charged
2. LIGHTSTREAM
With this lender, you need a good credit score to get an unsecured loan. The credit score must be 660 and above. For that, you get a loan amounting to $100000 with an interest charged from as low as 3.49%. You should pay back this loan for 2 to 7 years.
Pros
- Low-interest rate from as low as 3.49%
- You get $100 from the lender if you’re happy with the processing of the loan
- Larger loan amount of $100000
Cons
- Requires high credit of 660 and above to qualify
- Requires high credit history to get this loan
3. SoFI
You need a good credit score of 660 and above to qualify for this loan from SoFI which disqualifies a lot of people. With the right score, you can get a maximum of $100000 payable in 2 to 7 years. The interest rate charged on this loan is 5.99%.
Pros
- Low and appealing interest rate of 5.99%
- Good loan limit of $100000
- It comes with protection in case you lose your source of income
Cons
- High credit score needed to qualify of 660 and above
- Processing takes longer
- Can get a better interest rate from other lenders
4. Upstart
Upstart is new in the market but already making headway in providing unsecured loans. You require a lower credit score as compared to other lenders to qualify for this loan. The credit score needed is 580 and above. The maximum amount you can get is $50000 with an interest rate of 5.46% charged on it. You should pay back the loan in 3 to 5 years.
Pros
- Low credit score to qualify of 580
- Good interest rate charged which is 5.46%
- Good loan amount of $50000
Cons
- High percentage of origination fees charged on the loan
- Interest charged can go as high as 35%
5. One Main Financial
With One Main Financial, you get a loan of up to $20000. The one factor to remember with this lender is that there is no specified credit score limit to qualify. Still, the interest charged is 18% and the loan should be paid back in 2 to 5 years.
Pros
- No specified credit score
- Easy processing of the loan
Cons
- High-interest rate charged
- Small loan of $20000 given
6. Marcus by Goldman Sachs
You need a high credit score to qualify for this loan. The score is set at 660 and above. If you qualify you can get a loan of up to $40000 with an interest of 6.99% charged on it. You should pay back the loan in 3 to 6 years.
Pros
- Good loan amount of $40000
- Long payment period
- Favorable interest rate charged
Cons
- Require a high credit score of 660 and above to qualify
- Processing the loan take several business days
7. PENFED
PENFED is yet another lender that requires a high credit score to loan you this unsecured loan. The score has to be 650 and above. With this score, you qualify for a loan of up to $25000 with an interest rate of 6.49% charged on it. You should pay it back in 1 to 5 years.
Pros
- Good duration to pay back the loan
- Takes little time to process
Cons
- Interest rate is higher as compared to other lenders
- Credit score needed is high as well at 650 and above
8. Earnest
Not many people can qualify for this loan as the credit score needed is 680 and above. With that score, you get a loan from the lender of up to $75000. This loan is charged an interest of 5.99% and you should pay it back in 3 to 5 years.
Pros
- Good loan amount of $75000
- Low-interest rate as compared to other lenders of 5.99%
Cons
- High credit score needed at 680 and above
9. Discover
From Discover, you can get an unsecured loan of up to $35000. You need a credit score of 660 and above to qualify. This loan earns an interest of 6.99% and has to be paid back in 3 to 7 years.
Pros
- Good repayment duration
- Ideal loan for debt consolidation
Cons
- Low loan amount is given by the lender
- High credit score to qualify set at 660 and above
10. Best egg
You get a loan of up to $35000 as an unsecured loan from Best egg. You require a credit score of 640 and above to qualify for it. An interest rate of 5.99% is charged on it and you should pay it back in 3 to 5 years.
Pros
- Good repayment duration
- Low origination fee charged on the loan of 0.99% to 5.99%
Cons
- Low maximum loan amount
- Higher credit score needed of 640 and above
Conclusion
There are many unsecured loans available for you to choose from. Before you start searching for one, it’s advisable to understand why you need this loan in the first place. This should be followed by checking your credit score. Most lenders won’t give unsecured loans to you with a credit score of less than 580. Be sure to read up on what happens if I can’t pay my loan back.
Shop around and see the different amounts given and the interest rates charged. This gives you a better perspective on choosing the best lender. Keep in mind how flexible the lender is and what amount you have to pay in late fees in case of a delay in payment.