What Is Unsecured Bank Credit?
When you are applying for a business or personal loan, you are likely to encounter many different terms, which can make the process confusing if this is your first time borrowing. One such term is "unsecured bank credit," which is the name for a type of loan given through financial institutions like banks or credit unions.
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Identification
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Unsecured bank credit is a loan granted by a financial institution without you, the borrower, having to put up any collateral or having to pledge a piece of property such as a house or a car to guarantee the loan.
Types
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"Installment unsecured bank credit" is a loan in which you borrow a set amount of money to be repaid over a specified period of time and then make equal payments for that amount over the term or life of the loan. "Revolving unsecured bank credit" is the term given to credit cards and credit lines, where you are given a set spending limit, are charged a percentage of what you use a month plus interest, and can borrow the money again as you pay it back.
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Features
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The decision about whether or not to grant unsecured bank credit is based upon your credit history, which shows how often you pay your bills on time and how many other companies or banks you owe money. Financial institutions also take into consideration how much money you make each month and whether this is adequate to pay off the debt you already have combined with the amount of money that you are trying to borrow.
Benefits
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It usually is possible to get a decision about unsecured bank credit loans more quickly than secured loans like mortgages, as there is no appraisal, title or property report needed to consider the loan. This also means that unsecured loans generally have lower fees to apply for and close the loan.
Considerations
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Because they do not have any collateral to recoup their losses if you fail to pay your loan, financial institutions are more selective about who receives unsecured bank credit. Since the risk is higher for the bank, the interest rates for unsecured loans are often higher than those associated with secured loans as well.
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