Before making a decision to get unsecured loan one should fully understand what unsecured loan is and what are the consequences for the borrower if he or she fails to repay the loan. So we will try to provide you with the essential information.

Unlike a secured loan, unsecured loan is an amount of money which the borrower can get without providing any collateral to the lender in order to secure the loan such as car, home or any other property. Therefore, this type of loan is more risky for the lender. So how the lender makes a decision? The bank or any other institution giving the loan will consider your credit score. People with bad credit score are more likely to be refused. Because of the higher risk for lender unsecured loans usually have higher APR (Annual Percentage Rate of Interest) than other types of loans. Besides that, these loans may have shorter period of time, in which you have to repay it.

Sometimes lending institutions can call unsecured loans personal loans when in fact there is no difference between these two types of loans and actually they are the same product.

So how does the lending institution know about person’s credit history? Every time when someone wants to get unsecured loan he or she is required to provide a credit check which determines person’s credit rating.

You will be subjected to inquiry by the lending institution according to your name and address through a certain credit reference agency. According to the credit check the lender will decide how risky it will be to lend you the amount of money you are asking for.

You have to bear in mind, that every time such an inquiry takes place, there will be a note about it in you credit rating, and it will be taken into consideration in any further loan applications.

If you had no credit issues in the past, the lender is more likely to consider you eligible for unsecured loan. However, even if your credit history is not perfect you still have chance to get the loan, but be prepared for a higher APR and shorter terms of repayment. But in many cases people with bad credit history will be rather offered a secured loan by the lending institution if they are homeowners. The benefits of secured loans against unsecured loans: you can get higher amount of money and you will have more time to repay the loan. But be very careful because if your financial situation is tough you are risking your home if you offer it as collateral.