Before the current economic crisis began last September (2008), most bank, including Bank of America, Wells Fargo, and Capital One, offered unsecured personal loans to most customers with good to excellent credit. However, at this point in time, most of those banks no longer offer unsecured personal loans, at least not to online customers. So what do you do if you still want this particular loan?

The first item you need to determine is why you need an unsecured personal loan in the first place. Yes, that does sound like an odd statement, but you will need to prove to the loan officer that the unsecured loan is a good option for not only you but for the bank. For example, an antique car purchase, or a medical emergency would be good reasons for you to pursue an unsecured personal loans. However, the bank may not see it the same. Antique cars tend to hold their value as investments, so these are good loans for banks. Medical emergencies, on the other hand, are not investments, cannot grow value, and are basically a drain on a households assets. The bank may still accept both as valid loan reasons, but interest rates may affect them different (more on the interest rate topic below).

The second item you need to address when dealing with an unsecured personal loan is to understand if you can actually qualify for the loan. Because unsecured personal loans are not backed by any collateral, you will need to prove your credit worthiness to the bank. If your credit score is 700+, then your loan has at least a chance of being approved. Anything less than that, and you are probably not going to get very far with a loan officer (at least in the current climate). Be sure to check your credit score before contacting your loan officer at AnnualCreditReport.com. This site was created by the top 3 credit agencies--Equifax, Experian and TransUnion--to allow consumers one free credit report annually.

The final item, should you be able to qualify for the unsecured personal loan, is can you afford the interest rate you will be charged on the loan? Personal loans carry a much higher interest rate than other loans (such as auto and home loans), because they are not backed by an asset or group of assets. The risk to the bank on a loan with no collateral is higher and as such requires the interest rate to be quite possibly at least 33% higher than the interest rate on a secured loan. So, after qualifying, the loan officer will show you the rates and payment you'll pay should you except the loan offered. If your intent in receiving an unsecured personal loan is to pay the loan back within a short period of time (6 months or less), then the interest rate may not be a large burden to you. However, if you intend to carry the loan out to term (typically 3-5 years), then you need to understand just how much extra you'll pay on your loan.

As an example loan: a $20,000 loan at 12.99% (typical) interest will cost $4,256 extra in interest charges over the 3 year period. So, you end up paying over 20% of your initial credit request in interest charges to the bank! With costs like that, it's very important to go into loan requests with an excellent credit score so you can keep the interest rate low!

Please note that the current economic crisis, while subsiding, does still pose a road block to actually receiving an unsecured personal loan, at least with the major banks. Your local credit union, or hometown bank may be easier to work with in receiving a loan. It's been my experience that the local bank, with it's headquarters in your hometown, knows the people and the business climate in the areas they serve. And therefore are more willing to work with you in serving your needs.

While the big banks like Bank of America and Wells Fargo are places that people have typically gone to in the past for unsecured personal loans, I think the sudden surge of so called "Peer to Peer Lending" has helped many people with less than excellent credit get the money they need.  The top two in the Peer to Peer Lending field are listed below:

Prosper.com - the first Peer to Peer Lender for unsecured personal loans.  The Prosper model has investors bidding the rate down to get the business of the debtor and as such benefits the buyer of credit.

LendingClub.com - Lending Club is the opposite of Prosper in that the investor is given the information on the borrower along with the rate that the borrow qualified for.  Therefore, Lending Club is better for the Investor than the Lendor.  Not as many borrowers available at Lending Club.