Unsecured loans ▷ What are they and when to request them

Unsecured loans can be one of the easiest financial transactions to complete . Although we may need very specific requirements, requesting them does not imply too much time or effort, in addition, they are highly recommended for companies or individuals who wish to have a quick and easy type of financing.

However, there are currently some doubts that people have not yet come to understand when it comes to applying for an unsecured loan . That is why in this complete guide we seek to expose all those details that are necessary to understand to ensure that the experience with our loans is the most optimal.

What are and what are unsecured loans?

Unsecured loans, which are the same as unsecured credits , are short or medium-term financial transactions where a debtor has a commitment to repay the loan amount, adding the due amount of interest. We will do this through a document called a promissory note.

It is one of the most beneficial loans for companies and entrepreneurs, since in making the loan no specific guarantee is exposed apart from the obligation of the promissory note. Even so, we can use them rather to cover only very urgent needs, such as liquidity in work activities, since it involves a long-term risk.

And what is a promissory note?

A promissory note is a legal statement that sets out the obligations of the debtor , its name is due to the first lines of the document where it expresses "I owe and promissory note ...". In this declaration, the debtor is called the “subscriber”, which is the person who agrees to pay the loan. On the other hand, the "beneficiary party" is the one who makes the loan to us, which can be a person, entity or company. The promissory note also expresses the exact amount of money that we must refund and how long the term will be. If you want to know more about them, you have our guide on what a promissory note is and its differences with loans between individuals in which we give more details about them.

As we have already mentioned, these loans are usually short to medium term, since the longer the time to pay them, the greater the risk on the part of the beneficiary entities . This is why it is usually more available for companies that target a very productive commercial sector, although in reality anyone can request them.

Characteristics and most important aspects of unsecured loans

This type of credit complies with a wide variety of aspects that differentiate it from other types of loans. When requesting them, it is very important to take into account which are the most important characteristics that can be adapted to us and according to our debtor profile, since they are usually requested to cover emergency and last-minute situations , although normally we can request them smoothly through of Internet and in very reliable financial entities.

The most outstanding characteristics of unsecured loans are the following:

Does not require a guarantee

When requesting an unsecured loan, it is not necessary that we have any guarantee, such as a property or a bank account in case of not complying with the promissory note, this can be a benefit for the debtor, although this is also associated with its short-term nature . Even so, at the time of making the obligation document we must present a guarantor .

It is a natural or legal person that will be in charge of the obligation of the promissory note, in case we do not make the payment in due time, this is the true guarantor of the debtor's obligations.

The term of the debt is personalized

In other types of loans and credits, there is usually a debt term established in a generic way. However, when we talk about unsecured loans, they even usually design a term of the debt adjusted to the destination of the loan .

This means that if we use the loan to create a new product in our company, whose production and marketing process is between 1 to 3 months, the term of our debt can be adjusted to exactly 3 months, which is when it is assumed that already we have generated the profits from that new product. That is when we will have to make the repayment of the loan .

It is very versatile

But we can not only use this loan to carry out our business or to expand our market niche, we can also have access to it in case we want to make reforms in our property .

Since improving our workspace, store or office depending on the case, can help us increase our popularity among our customers, so it will be easy to respond to the refund within the agreed period.

Advantages and disadvantages of unsecured loans

There are many reasons to apply for this loan without having to think about other financing methods that can help us, so it is important to pay attention to those advantages that can make a difference. Although there are also some not so positive aspects that can be a problem at the time of requesting it. Without further ado, let's see what are the advantages of unsecured loans :

  • We do not need to provide a physical warranty . Our properties and assets will be safe in case we cannot pay the loan at the end of the agreed term.
  • It is excellent for unforeseen liquidity : At times, investment opportunities may arise in our company that are not within the planned plan for the productive year. In order not to lose these growth opportunities, we can request an unsecured loan adjusted to our needs.
  • It is easier to apply : Unlike other types of loans, the process that financial entities carry out to approve this type of credit is easier and faster than any other loan aimed at companies or individuals .

On the other hand, not all loans are perfect. There are also some disadvantages that can make us hesitate when requesting them, although this will ultimately depend on how we are going to use them. The most notable disadvantages are:

  • Long-term loans are unlikely : Since they are intended for a short-term financial process and it is very unlikely that it will last for more than a year. Financial institutions prefer to discard it since it is a risk not to have a guarantee. Likewise, the probability that debtors will default on payment is also higher.
  • Interest rates are high : This may be its most notable disadvantage, since its speed and effectiveness is reflected in high interest rates. Unlike other credits that are backed by a guarantee, unsecured loans are riskier on the part of the creditor.
  • It is difficult to determine the end of the term : The debtor must be able to determine a precise day in which he will pay the loan. This is sometimes very difficult to calculate, so we must have an action plan that clearly shows the periods of time established for the use and repayment of the loan.

Requirements to apply for an unsecured loan

Depending on the purpose of the loan, we must have at hand a series of requirements that the financial institution will request. As we have already mentioned, it is nothing out of the ordinary, although you do have to pay attention to certain conditions at the time of transfer. The most common requirements to apply for an unsecured loan are the following:

  • An investment program. Without a doubt we cannot set aside an investment program or schedule, it will not only be useful to calculate the exact amount that we must pay in the correct term , but it will also be a viable guarantee for the entity that will make us the loan.
  • Financial statements of the guarantor. Like the debtor, the person who will be part of the promissory note as guarantor must present a balance and a financial statement to the company that will make the loan to us , since this way they will be able to corroborate that it is a viable payment in the event that we cannot pay at the end of the term.
  • Some entities request that the interested parties be affiliated with some of their plans or that they have already had a financial transaction in the past.
  • Likewise, it is important that at the time of requesting the loan we do not have any overdue credit in any other financial institution, although we can request them to pay debts of another type.
  • Sometimes it is also necessary to have an age limit, for most an age greater than 18 years is required, although there are also some unsecured credits that have an age limit of up to 75 years.

Unsecured loan terms and interest rates

We have already mentioned previously that the payment term of unsecured loans is usually totally personalized according to the purpose for which it will be used and the type of business we carry out. However, certain important aspects must be taken into account when we calculate the ideal time to return it .

The cycle of operations of our business activity will be closely involved in this process. It is a procedure that begins from the production of a good or service, until it reaches our final customer, who does not necessarily have to be a person, this can also be aimed at companies and other professionals.

In this process we must take into account the time it will take for the shipment or supplies to make the product, its construction, promotion and transport to the place where it will be sold, once this period of time is completed, we will begin to see the income of the product and it is the moment in which we have to repay the loan .

Although it is important to note that not all companies are the same and the time periods tend to vary greatly from each other. In this sense, companies that have a too long operating cycle are less likely to approve an unsecured loan . All this must be very well specified in the guarantee document.

Depending on the case, we can use some short-term to long-term measures based on our business planning. Likewise, the interest rate must also be calculated by the entity, but to have an approximation as an example, we can take into account the following:

  • Short term: one to six months. Interest rate: Less than 10%.
  • Medium term: from six months to two years. Interest rate: From 10% to 11.50%.
  • Long term: two to three fixed years. Interest rate: 12.50% or higher.

Steps to apply for an unsecured loan

If we have already requested some other type of credit in the past, we will realize that doing it for an unsecured loan is simpler, although it is necessary to review what its basic steps are before contracting a definitive loan. The most beginners can consider the following procedure:

  • Step 1: the first thing we should do is look for a list of options of financial entities that we can go to to apply for our unsecured loans. We can do this through the Internet or by accessing alternatives that have been proposed to us by someone we know who has already done this procedure before.
  • Step 2: next, we must investigate as much as possible about the financial institution where we are going to apply for the loan. In this way we can have the requirements that we will need and the specific conditions at hand.
  • Step 3: we will contact the financial institution's customer service directly. In the event that it has a digital platform, we will proceed to create a user so that they can include us in their customer database.
  • Step 4: we must provide our email address, mobile phone number and any other information that they request so that they can contact us.
  • Step 5: some digital platforms will request the type of loan we want through the form. This type of process will shorten the approval time.
  • Step 6: When the entity contact us and we nviarles all these requirements and documents mentioned above and any other requirements you may need.
  • Step 7: Approval deadlines are usually after 24 hours or more. Although this will depend on how they work in the entity, this process is usually not that long.
  • Step 8: and voila, we can enjoy our unsecured loan without forgetting our repayment deadline.

How long does the approval of an unsecured loan take?

At the moment we request one of these credits, the beneficiary will notify us how long we will have to wait for the approval of the same, this is not usually long. In a period of 72 hours we will surely have an answer, although everything will depend on the amount of money that we request with the loan and other influencing factors.

The unsecured credit will be available in our bank account according to the speed of the process and the capacity of our banking resources.

What are unsecured creditors?

The creditor is that person that we have already mentioned previously. It is in charge of lending the money, it can be a company or an individual. At the time of making the loan, the loan will not have any real guarantee of payment, since as debtors we only have to guarantee to return the equity once the term has expired .

However, creditors do not have any guarantee of how they will receive the payment, since it can be in the same way in which they made the loan, in credit, cash or even in real estate.

By not having any type of guarantee, the creditor may have certain rights over some of our assets, that is, they can seize our assets (or those of the guarantee) to superimpose the money plus interest.

You can also claim any form of payment except those non-renounceable assets , which are those that we cannot sell or legally assign, such as, for example, a property that has been donated to us or we have acquired it by testamentary succession of a relative.

The unsecured creditor is entitled to access all these assets in order to add up to the total amount loaned.

What happens if we have multiple creditors?

If, as debtors, we have requested an unsecured loan from several creditors, we must follow several legal guidelines to determine how the assets will be distributed. According to the law, all creditors have access to the assets indistinctly until they fully pay the debtor's payment .

There are also times when the equity cannot cover the debt of all creditors. In case it is not enough, the estate will be divided equally among all creditors, although this can cause some problems, for example, in case some creditors demand higher proportions supported by law.

Finally, when making an unsecured loan we have many possibilities to obtain more than one legal obligation. Both parties can do what is called novation of the unsecured loan , it consists of the termination or modification of the loan in the event that there is a subsequent obligation. That is, if as debtors we wish to renew or request a new loan, we can request a novation.

But before doing so, we need to follow some requirements. It goes without saying that both parties must agree to the intention of the novation and we must have the capacity to do so. Likewise, the new obligation must be different from the previous one.

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