Short-term unsecured credit loans come in many forms the most common of which is normally by use of a credit card. Like a credit card however, unsecured credit loans are differentiated from secured loans by the fact that they are not secured against some form of collateral. The lack of collateral can sometimes make it more difficult to obtain an unsecured credit loan because the risk of default carries more weight to the lender.
The reason why sometimes secured loans may be easier to qualify for is because should the borrower default then the outstanding debt can either in part or in full be collected by selling off the underlying collateral. Mortgages are a great example of secured loan because the home itself is the collateral which can be applied against the outstanding loan. When a borrower takes an unsecured loan the lender is not guaranteed any repayment should there be a default because there is no underlying collateral.
Credit cards are the most common form of a short-term unsecured loan in that they provide immediate access to necessary funds to make purchases and can be repaid in full within the grace period of the loan. What makes them slightly different from most short-term unsecured credit loans is that most credit card holders do not normally use it as a short-term loan but treat it more as a revolving line of credit. That is, the outstanding balance which should be paid in full every month is more often only partially paid with new debt accumulating every month going forward. What gets borrowers in trouble is treating this type of loan more long-term which leads to compounding interest on the principal balance which can make a small loan amount balloon over the years and make it very difficult to pay off.
Personal, also known as signature, loans are another type of unsecured form of credit provided mainly by banks and credit unions. These types of loans are almost entirely character-based. They take into account not only an individuals credit history and FICO score but also the length and quality of the relationship with the financial institution. These loans also tend to be lower in total amount to comparable credit card maximum limits but often come with better interest rates and terms for repayment due to their limited and often one time use by a customer. Because of the lack of collateral, banks tend to shy away from signature loans because they are more risky and don't normally offer the type of return that a credit card would have.
The Internet has provided a new source of unsecured credit loans for individuals by way of microcredit. If a borrower needs a relatively small amount of funds they may be able to get a micro-loan from one of many numerous websites which are communal in nature. These types of loans are often funded by many individuals at one time which helps spread the risk and lower the overall amount prone to loss per person. Borrowers still have to qualify for these types of unsecured loans just as they would for a personal loan from a bank but it may be an acceptable alternative should other forms of borrowing fail.
A final alternative would be the use of a payday loan which some may consider secured but actually can also be unsecured in nature. This dual status comes from the fact that while the loan is secured against a pay check and a valid checking account it is also unsecured in that these types of loans may fall victim to fraud and there's no available underlying asset for sale to recover lost funds. Because payday loans often lack collateral they tend to carry higher interest rates with shorter terms and can have severe penalties and fees if the loan is not repaid on time and to the agreed-upon terms.
If borrowers do not have readily available access to some form of collateral such as a residence or an automobile then there are various options available for obtaining short-term unsecured credit loans. Evaluating all these options for their pluses and minuses and picking the option which works best for your situation may mean the difference between paying a one-time car repair or not being able to drive for months. As with all loans carefully do your research and read all agreements and contracts in addition to making copies and having witnesses to protect yourself from unscrupulous lenders and shady organizations.
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