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Unsecured Loans

An unsecured loan in Canada is a popular way for consumers to request cash for emergency situations. Unsecured loans generally cost more than a secured loan and depend on how good the borrower’s credit is. If you have bad credit, an unsecured loan may be hard to get so consider that before deciding to request an unsecured loan. Also, the interest rates on unsecured loans tend to be higher. In contrast to payday loans, which are secured loans that use your next paycheque as collateral.

Short term loans, or payday loans, may be a better choice for Canadians with poor credit who are looking for bad credit loans. These types of loans are secured and are easier to get and do not require a hard credit check. An unsecured loan will require a much more in depth check that could ding your credit score.

What is an Unsecured Loan?

Unsecured personal loans are loans that are supported only by the borrower’s credit score, rather than using collateral to secure the loan. Collateral is some sort of property that the borrower owns that is of equal or greater value to the amount of the loan being requested. Borrowers of unsecured loans must have a high credit score in order to be approved for many unsecured loans. Individuals with bad credit, no credit score or poor credit are unlikely to be considered for an unsecured loan, however, with Friendly Lender, there are many options available to individuals looking for an emergency loan for bad credit.

One of these options in Canada is a payday loan. Payday loans are secured by your next paycheque. These loans are typically repaid on or before your next payday and are intended to be a short term solution to a one time financial need. If you have bad credit, you may wish to consider this as a lending option because these loans may be easier for people with bad credit to obtain than other types of loans.

How an Unsecured Loan Works?

Unsecured loans are more risky for lenders than other loans. Lenders may allow you to sign up for an unsecured loan with bad credit if you have someone co-sign the loan that has good credit and can take on the obligation of repaying the debt should the borrower default. This is in contrast with secured loans, which are secured by collateral, such as a mortgage or car payment in which the lender can make a legal claim to the property that is used to secure the loan should the borrower default on the loan.

If you’re wondering what “default” means, it means that the borrower has failed to repay the loan amount they borrowed, with interest, within the term of the loan. The second type of loan is much easier to get because it is less risky for the lender to recover the amount of the loan.

Benefits of Unsecured Loans

The major benefit of an unsecured loan is that it requires no collateral but here are some other common advantages:

  • You can use them to pay for a variety of expenses, including major purchases and unexpected repairs.
  • Some personal loans come with fixed interest rates and monthly payments.
  • Flexible repayment terms, allowing you to choose a repayment period that makes sense for you.
  • Loan amounts that may range up to $1,000

When to Use an Unsecured Personal Loan?

Some common reasons for choosing an unsecured, personal loan can include:

Debt consolidation and unexpected emergencies, such as a car or home repair that needs to be done right away. Paying bills on time to avoid painful late fees.

You should never take out a loan just because you can. When deciding to request a loan for any reason, consider why you are doing it and think about your credit. Taking on an unnecessary financial burden of additional debt may not be the solution for every person, in every situation so it is important to carefully consider your options before requesting any type of loan. If you are thinking of purchasing a luxury item, it might be best to wait and save money for it, depending upon your personal circumstances. Always be sure that you are borrowing money for a good reason for you and do not let anyone strong arm you into borrowing unnecessarily.

What Are the Types of Unsecured Loan?

There are a few different types of unsecured loans in Canada.

Corporate Unsecured Debt: This type assumes a greater amount of risk and is not something commonly encountered by the average consumer.

Personal Loans: These are loans which you can request in order to meet an unspecified need, such as repairing your car or paying a bill in order to avoid a late fee. The direct lenders Friendly Lender works with can offer many different kinds of personal loans, such as payday loans, bad credit loans, emergency loans, installment loans and other short term loans.

Consumer Durable Loans: This loan is typically taken out for consumer durable goods, such as an appliance for your kitchen, or things like your hot water heater and could even apply to a loan for a television. These types of loans are commonly offered at the point of sale, basically at the store where the item is purchased. These loans may sometimes offer no interest if the debt is repaid within a certain period of time.

Student Loans: This is a common type of debt that is unsecured. These loans are taken out by students or their parents to cover the cost of tuition and books while the student is taking courses to secure future employment. Because there is no guarantee that the student will find employment in the field in question, these loans are repaid under very strict conditions to reduce risk for the lender. There are some cases in which these loans can be secured if a parent or other individual co-signs or collateral is offered by the borrower.

Not all of these types of unsecured loans apply to everyone in every situation, but it is important to know what options are out there for various situations. Fortunately, Friendly Lender has a team that is capable of helping you choose the loan product that is right for your financial needs.