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What is an unsecured loan?
An unsecured loan is a type of loan that is not supported by collateral. It is also known as a short term loan or personal loan.
When issuing unsecured loans financial institutions take into account only the borrower's credit rating and ability to pay back the loan. Because of that, unsecured loan is often very much hard to get approved for rather than than a secured loan. As it was said earlier financial institutions look at borrowers income among other factors. An unsecured loan is much cheaper than a credit card and posts less risk to the borrower as there is no collateral involved and borrower has nothing too loose if the loan is not paid on time. Nevertheless, when an unsecured loan is given, it is not always based on your credit score. For example, you can get money without any collateral and any credit requirements from a payday loan company, if the loan isn't repaid, only then your credit score will be impacted. Consequently the real meaning of an unsecured loan is that it's not supported by any object of value and is lent to you based on your ability to pay and steady employment. Major financial institutions may require to look at your credit score since they don't know you unlike a local payday loan store it is strictly a business transaction for them. If build up a good relationship with a local payday loan company you can get a relatively large unsecured loan with no credit requirements or even bad credit. There are 3 types of unsecured loans. The first one is a personal unsecured loan. It is a loan that you as an individual and not as a business can borrow from a financial institution and you will be individually responsible for the repayment of the loan. Secondly, there is an unsecured business loan which a company or a business can obtain from a financial institution and the business is responsible for the repayment. Finally there is an unsecured business loan with a individual guarantee. With the last mentioned, though the borrower is the business entity, if the business defaults on the loan an individual that guaranteed the loan personally will be the payer of last resort .