An unsecured signature loan is a loan that is not backed by collateral. Also known as a signature loan or personal loan.
Unsecured signature loans are based solely upon the borrower's credit rating. As a result, they are often much more difficult to get than a secured loan, which also factors in the borrower's income. However, an unsecured signature loan is considered much cheaper and carries less risk to the borrower. However, when an unsecured signature loan that is not backed by collateral is granted, it does not necessarily have to be based on a credit score. For example, if your friend loans you money without any collateral, meaning something of worth that can be repossessed if the loan isn't repaid, then your credit score has zero to do with it, but rather the value of your friendship is at stake. Therefore the real meaning of an unsecured signature loan is that it is not backed by any object of value and is loaned to you based on your good name. For financial institutional purposes, they may want to look at your credit score because they are not your friend and it is strictly a business transaction, therefore your good name may be associated with your historical payment history on prior debt, reflecting in your credit score. There are three types of unsecured signature loans.
First there is a personal unsecured signature loan, meaning a loan that you individually are responsible for the repayment of, second is an unsecured business loan which leaves the business responsible for the repayment, and finally there is an unsecured business loan with a personal guarantee. With the latter, although the borrower is the business, you as an individual will be the payer of last resort if the business defaults on the loan.
As with any unsecured debt there is probably a higher interest rate than would be with a secured loan. You may find yourself in over your head with the bills already and your personal unsecured signature loan is nothing more than another reminder of your mistake.
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