How to Borrow Money With an Unsecured Loan
You'll almost always get the best interest rates on loans that are backed up by collateral--known as secured loans--such as home loans and car loans. But perhaps you need a loan and don't have any collateral. Don't fret; there are still plenty of ways to borrow money through an unsecured loan, although you will likely pay a much higher interest rate.
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Instructions
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Types of Unsecured loans
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Get a personal loan from a bank or credit union. You have to have a good credit score to get this type of loan because the institution is lending you money with only your word that it will be paid back. Even with a high credit score, you will pay very high interest on a personal loan, and the rate can vary depending on where you live. For instance, the lowest rate for a personal loan in the Los Angeles area from Wells Fargo bank, one of the largest banks in the country, was 16.45 percent as of March 2009, according to bankrate.com. Wells Fargo, however, was offering the same loan for as low as 13.25 percent in Lincoln, Nebraska.
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Use a credit card. Credit cards are a good option for unsecured loans because they generally carry much lower interest rates than personal loans. According to bankrate.com, as of March 2009 the average rate on all credit cards was 10.68 percent. You will still need a good credit score to get the best rates and highest credit limits. If your credit is not so good, you may still be able to get a card but may not be able to get a high-enough credit limit to get the amount of money you need. You can use use the card several different ways to get the money you need. If you are making a big purchase, you can use the card to make the purchase and then pay it off over time. If you need cash to pay off a debt, you can get a cash advance from your card, although you will have to pay a fee. And if your debt is transferable, you may be able to transfer the balance onto the card. This will also likely carry a fee.
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Get a loan from a friend or relative. This may allow you get a low interest rate and flexible terms, because the person knows you and how reliable you are. If you go this route, make sure to formalize the terms and treat it the same as a bank loan. Set up a payment schedule and stick to it. There are websites, such as virginmoneyus.com, that will formalize your loan for you and even administer and collect payments for a small fee.
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Borrow from a person-to-person loan website. These sites became popular in the mid to late 2000s and involve people bidding to fund all or part of a loan sought by someone else. At prosper.com, one of the most well-known sites, borrowers apply for a loan and state the maximum rate they will pay. Prosper.com vets their creditworthiness and then lenders bid to loan them the money at a certain rate. These loans will generally carry lower rates than personal loans from banks or credit unions.
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Resources
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