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Dear Personal Loan Adviser,
I need to borrow money on an unsecured basis and want to know what options are available. What are the different types of unsecured personal loans that might be available to me?

Many thanks,
— Brittney Borrower

Dear Brittney,
An unsecured loan is one not backed by any form of collateral. With a car loan, if you don’t make the loan payments, your car gets repossessed. If you don’t make your mortgage payments, your home can go into foreclosure.

An unsecured personal loan doesn’t have that backing, so there’s more risk to the lender. Often, they’re called signature loans because the only thing backing the credit is your signature on the loan contract, along with your ability and willingness to repay the loan.

Options similar to a personal loan

Payday loans, car title loans and pawnshop lending may not be considered personal loans, because there is a measure of collateral for the lender. There’s not that much security with a payday loan because all the lender has is your post-dated check, but the check does represent a claim on your bank account balance.

While cash advances on a credit card are a form of an unsecured loan, the credit card companies have made the costs of these loans so high that they typically don’t make sense as a source of cash. Since one of the financial goals of getting a personal loan is consolidating credit card debt, a balance transfer can be a less expensive option than a cash advance.

Where to get a personal loan

Banks, credit unions, and peer-to-peer lenders like Avant, Lending Club and Prosper offer signature loans. The terms you are offered on these loans will vary based on your credit history and income level. From a risk-based perspective, the interest rate should range somewhere between the interest rate on a credit card and the interest rate on a cash advance on that credit card.

It won’t be cheap money, but if you can use it to right your finances and keep your credit history in good shape, a personal loan can be worth the expense.

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