6 Types of Unsecured Loans You Will Most Likely Encounter

Unsecured Loans

Starting a business is no easy task. Before you begin, you will need to have a good amount of capital which can sometimes be hard to procure if you are still starting. It is why most business owners like to get a loan from a bank or other lending institutions. There are two types of loans, secured loans and unsecured or no security business loans.

Secured loans are loans that need collateral. Unsecured loans do not need collateral, but since the lender has a higher risk, they will ask for a higher interest rate, a high credit score or both. In this article, you will learn the different types of unsecured loans available.

Types of Unsecured Loans

Despite the ongoing pandemic, young entrepreneurs gambled on creating new businesses even though the economy is unstable. It led to a rise in unsecured loans since some of them still do not own assets. Aside from business, unsecured loans have also been utilised for education, weddings, and other expenses.

If you are going to take up an unsecured loan, you generally can find three types.

  1. Revolving Loans. This type of unsecured loan lets you borrow a certain amount of money, repay it and withdraw again. Hence, the name. The lender will put a limit on how much you can loan. As long as you cannot reach that limit, it will not halt your ability to borrow. This loan is flexible, and you can utilise it multiple times. You can even use it as a line of credit for your business.

At the end of your loan, you will then be asked to pay it back with interest. Therefore, this loan can be helpful if you need quick cash without worrying about a fixed schedule.

  1. Term loans. If revolving loans are flexible to borrowers, term loans are the complete opposite. These loans have to be paid within a schedule. They also have a fixed interest. So if you are looking for funds that came from a fixed asset, or are looking for a long-term loan, then term loans are your best option.
  2. Consolidation Loans. If you are looking to pay your loans with another type of loan, you are looking for a consolidation loan. Consolidation loans exist for you to pay other loans you have accumulated. So why pay your loan with another loan? Sometimes different loans can have different terms and interests, and some people can have difficulty paying different loans.

Consolidation loans help people by paying all their loans, which means they will only have to repay one type of loan. These loans can be paid by the plan, depending on your lender.

Utility-based unsecured loans

These loans can be classified by the way they are used.

  1. Top up loans. If you have an existing loan but want to add another one, you can go for a top-up loan. Top-up loans combine the two loans into one, which means you will only have to pay one loan.
  2. Bridge loans. Bridge loans are a type of short-term loan which generally have to be paid within a year. They are great if you need some quick cash.
  3. Consumer Durable Loans. If you plan to buy gadgets for your business but do not have the money for them, you can apply for consumer durable loans. Consumer durable loans are specifically tailored for gadgets and can be offered as revolving credit.

Unsecured or no security business loans are a great help for individuals with no assets for collateral. So, if you want to start your business right away, even if you have nothing right now, it is not impossible.

Author : Alison Lurie