Debt 101: Refinansiere Inkassogjeld Uten Sikkerhet (Refinance debt collection without security)

Charlotte Miller

Today, we’re going to tackle one of the most asked questions in the world of lending:

Can you apply for refinancing without security?

There are basically two types of loans that banks and other financial institutions offer. While there are many types of loan offers from mortgage, car, business, personal, short-term, travel, to emergency loans, all these loans are offered in two ways: secured or unsecured.

Secured loans are those with collateral attached to the loan agreement. A collateral is any object of value that the bank or lending company can repossess should the creditor be unable to pay off the money they borrowed due to certain circumstances – such as loss of employment or overwhelming debt obligations. Usually, properties such as cars, houses, land, business/trademarks, jewelry, and other similar valuables or possessions can be used or presented to the bank as collateral when applying for a loan (read more).

Unsecured loans, on the other hand, are those that do not require collateral. Therefore, there is no property or item involved in the agreement between the borrowing party and the lending party. This means that the bank is approving the loan in full confidence without any need of security from the borrower.

Ideally, most borrowers would opt for a non-collateral loan. The process is simpler, the approval time is shorter, and there’s just less risk involved with an unsecured loan on the borrower’s part. When the loan is non-collateral, most of the loan risk is assumed by the bank or lending company in exchange for slightly higher interest rates.

Apart from risk, there’s also the fact that most people don’t own properties from the get-go. Those that do hardly have any reason to take out loans from banks. This is why there is greater demand for non-collateral loans as those that need to borrow money often do not have a property or item that they can present as collateral to secure a loan.  

Now, the question is, does this apply to refinancing too?

Is It Possible To Get Refinanced Without Collateral?

I know. It sounds a bit contradictory. I’m sure that you’re wondering why lenders would take on a huge risk of approving refinance loans without a security blanket?

Most times, when people apply for refinancing, it’s because they are unable to settle old debt with the current income they have. It could be that they’ve had some rough times and missed several payments and now their credit card debt is staggeringly high, and only getting higher as each month passes due to the steep APR most credit cards have.

In cases like this, it’s completely understandable how borrowers would seek other options in order to pay back the money they owe without racking up more debt. This is why refinancing loans exist; it aims to help loan consumers resolve outstanding balances that are already fetching staggering interests by paying off those debt obligations and establishing a new loan account in place of them.

Given the nature and the purpose of the loan, you would think that lenders would definitely require collateral to secure the loan – especially when there’s already a debt collection notice issued. After all, it’s a loan people take out due to the fact that they are unable to pay previous balances. It would be counterintuitive for banks to loan more money to these individuals without security, right?

Well, not exactly. Refinancing loans are offered to relieve people of bad debt. It offers a solution to those who do want to recover from overwhelming debt but simply don’t know or don’t have the means to do so. This means that banks that offer this type of loan are already aware of the demographic they are dealing with and fully understand the risks involved.

Not only that, they also understand that not everyone who’s deep in credit card debt or other types of high interest loans are delinquent borrowers (more on this later on). Sometimes, life simply gets the best of us and we make decisions without carefully thinking them through. Or we did, but still, we’re left with no other choice but to succumb to the grasps of high interest debt due to inevitable financial obligations. Read more about refinancing for debt collection here:

Anyway, the short answer to the question is YES, it is possible to get refinanced even if you don’t have collateral to secure the loan with the bank or lending company. However, you do need to have the right qualifications to avail an unsecured refinance loan.

Apart from the usual documents that you will need for your loan application, such as valid, government-issued IDs, bank statements, proof of income, etc. Here are other things lenders look at when assessing applications for a non-collateral refinance loan:

Credit Score

Having outstanding balances doesn’t immediately make you a bad creditor. Yes, your credit score would not be the best in the world, but it should fairly reflect your behavior towards credit management. In Norway, a credit score of 71 and above is most ideal and a credit score below 20 is the least. If you score below 20, this tells financial institutions that you are a high-risk client and your behavior towards debt is poor.

If you have been dutifully paying your minimum amount dues as much as you can, your credit score shouldn’t have suffered a critical hit. It would still be at a good number. Just because you can’t pay the loan in full doesn’t mean you are neglecting it – this is pretty much what minimum payments are for. It tells lenders that you are financially conscientious and have full intention to pay back, you just don’t have the means right now.

Check your credit report. You can request one with your bank if you haven’t checked it recently. If your score is average or above average, you have a good chance of getting approved for a non-collateral loan.

Income Source

Another thing lenders check is your capacity to earn good money. You need to have a stable job or business in order to qualify for a non-collateral loan. This means that you’re either regularly employed (not part-time, freelance, or temp jobs) or own/manage a business that’s been profitable for the last couple of years (this is reflected in your annual audited statement.

The stability of your income allows banks to calculate your risk as a client, especially if you’re negotiating for a longer repayment period for your refinance loan. If you are refinancing a business loan, you can read more about the requirements here.

Also, keep in mind that they will likely assess your income with your immediate monthly expenses considered. If you have other payables for the month such as rent, mortgage, or other installments, those will be pitted against your income as well.