What Is An Unsecured Loan

Unsecured Loans

What Is An Unsecured Loan?

You’ve probably heard of unsecured loans but exactly what is an unsecured loan?

There are generally 2 types of loans, namely;

  • secured loans
  • unsecured loans

To understand the difference we’ll explain both unsecured loans as well as secured loans.

This will help you see clearly what constitutes an unsecured loan and which type of loan would be more suitable for you personal situation.

Unsecured Loans

What Is An Unsecured Loan

Unsecured Loans

Unsecured loans are those where the borrower does not require to put up any sort of collateral in order to get the loan.

If you are the borrower, for example, you would need to submit a loan application with all the relevant details including proof of income etc.

On the strength of your personal financial standing & track record you may or may not be granted the loan.

If your loan application is approved you would then have to sign the loan agreement promising to pay back the loan in certain installments, at a certain interest rate over a certain time frame.

One of the disadvantages of unsecured loans is that the interest rates are generally significantly higher than the rate charged for secured loans as no collateral is put up which makes it more risky for the lender.

On the other hand, a secured loan does require collateral and comes at a lower interest rate as the risk for the lender is not as high as granting an unsecured loan.

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Types Of Unsecured Loans

Types Of Unsecured Loans

Types Of Unsecured Loans

There are various types of unsecured loans, including unsecured business loans, which you probably make use of in your everyday life without even thinking about it.

These are just some examples of unsecured loans.

  • Personal loans
  • Medical bills & accounts
  • Payday loans & all types of loans
  • Unsecured business loans
  • Credit cards & accounts

Take your credit card, in the example above, it’s just a means to grant you access to unsecured lending.

However, in this case, your credit card would’ve only been granted once your application with your personal information had been approved, but as there’s no collateral involved credit cards come at a high interest rate & cost.

An unsecured loan comes into being when you get a loan or credit on the strength of your personal credentials without putting up any type of collateral.

Another example of unsecured loans is when a natural person lends you some money without you giving them any guarantee in the form of collateral up front.

This type of unsecured lending usually takes place online where one person agrees to lend money to another on a website designed for this purpose.

Since the lenders often don’t require a credit report they have become very popular with borrowers although I can bet they come at exorbitant interest rates.

If your credit rating is good I would advise you to avoid these types of lenders & rather go through reputable financial lending institutions for all your financial requirements.

Personal Information & Criteria To Get Unsecured Loans

Unsecured Business Loans

Criteria For Personal Unsecured Loans & Unsecured Business Loans

To get unsecured loans your personal information that you provide on your application form could entail the following;

  • Your address & how long you’ve been living there
  • Your place of employment & how long you’ve been employed there
  • Your income and proof of income
  • Proof of citizenship

The finance house or loan company will review all of the above to ascertain your financial risk profile as well as obtain a credit report.

If you have any judgements or black marks against your name these will count against you.

On the other hand if your credit report is clean & your risk profile good you will almost certainly be granted unsecured loans anywhere at favourable interest rates & repayment terms.

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Posted in Loans, Personal Finance, Personal Loans

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