When I worked in banking, customers would regularly come in asking about getting an unsecured loan. These loans, often called personal loans, were not something my bank offered. While many banks do not offer personal loans, there are many ways to find unsecured loans if you know where to look.
Many credit unions offer their members personal loans. They will have a higher interest rate than a mortgage or auto loan because the credit union is risking that you will not pay them back on your honor. They have no collateral or recourse if you stop paying. A recent, unscientific survey of credit unions put the average interest rate around 12% for this type of loan.
Credit unions are not-for-profit institutions that have their member’s best interest in mind when they operate. Big banks are in it for the profit, and they may offer personal loans if you are a low risk borrower and they think they can make money. A quick search online will give you options for banks near you.
A newer option, but certainly one worth considering, is looking to a social lending site. Social Lending sites offer competitive rates for unsecured loans. They are crowd funded by investors who choose your profile on the site. If you are compelling and have a good risk profile, you can usually get a loan easily and pay a lower rate than banks or credit cards.
Credit cards are the default personal loan, though most people don’t think of it that way. However, most credit cards charge extremely high interest rates compared to other forms of loans. You can easily pay over 20% annual interest on a credit card. I suggest avoiding this option unless you already have a great interest rate for your account.
Have you ever needed cash in a hurry and didn’t have collateral for a secured loan? How did you get an unsecured loan? What did you learn from the process? Please share in the comments.