For most traditional loans, you need to offer the lender collateral to back it up. For example, with a home loan, the house is the collateral. If you happen to default on the loan, the lender will take the house and sell it to recoup their losses. Requiring collateral can help protect the lender from losing money on any loans they approve. In turn, it often allows them to offer lower interest rates because the stakes are relatively low. But in some cases, a no collateral loan is an option.
Those with excellent credit can qualify for a no collateral loan from a bank. Because they have such great credit, the bank can trust that the borrower will repay the loan as scheduled. These are also known as “Signature” loans, in that the borrower’s signature is required. If they default on the loan, the bank can still sue them and pursue their assets to pay the loan. Businesses with great credit who can generate substantial profits, or who demonstrate exceptional management skills can also be approved for a no collateral loan. A business who receives a no collateral loan can also receive a boost in credit from their suppliers, due to the bank’s confidence in their financial well-being.
Other types of no collateral loans include paycheck loans. These are short-term loans that can supply instant cash in an emergency. For this type of loan, you simply need to prove that you are employed, and submit your monthly income information. Other examples of unsecured debt are credit cards and school loans.
Cover Your Assets with a No Collateral Loan
Why pledge your valuable assets if you don’t have to? One of the benefits of establishing a great credit history is that your signature can qualify you for a no collateral loan. Whether it’s for personal use or for your business, a no collateral loan can enhance your credit standing and your reputation.