Unsecured Personal Loan- How it Works


You know loans- and you know them well. When you want a car, you go for an auto loan. You want to buy a house, you take a mortgage. When you want to get an education, you go for a student loan. But besides these, there’s another type of loan that’s far more versatile. It’s called an Unsecured personal loan. This loan gives you more flexibility than any other loan and is very helpful in times of dire need.

What is an unsecured personal loan and how does it work?

An unsecured personal loan is a sum of money that a lender offers you without demanding any form of collateral. As you can see, this means a higher risk for lenders. Therefore, they charge you higher interest rates compared to other secured loans.

This is also a type of installment loan, where you borrow an amount and repay it with interest, in the form of monthly installments. Typically, the repayment term for this loan ranges from 12 to 84 months.

Also Read: 5 Most Common Uses for Personal Loans
If there’s no collateral needed, on what basis are you loaned money?

This is probably the most obvious question on your mind. The answer is quite simple. Lenders simply look at two things:

  1. Your ability to repay the loan
  2. Your credit history

Besides a stable income, lenders also consider your credit score and repayment history. A good credit score is one of the most important determinants for an unsecured personal loan. This also affects the interest rate that the lender is likely to offer you. So an excellent credit score will help you take advantage of the Best personal loan offers available in the market.

What purposes can you use an unsecured personal loan for?

You can use this loan for virtually any purpose, including wedding expenses, medical emergencies, moving expenses, debt consolidation, or for an expensive purchase.  This loan is especially helpful when you’re in urgent need of funds but do not have any savings, or collateral against which you can borrow.

How much can you borrow using an unsecured personal loan?

The borrowing limits vary from one lender to another. But in general, most lenders offer loans ranging from $1500 to $100,000. However, it is your creditworthiness that ultimately determines the amount you are eligible to borrow.

An unsecured personal loan is undoubtedly a great way to finance personal expenses and to get out of debts faster- but only so when you make a careful, informed choice. So before you opt for this loan, be sure to understand how it works, and how it is likely to impact your financial health.

Also Read: Unsecured loans- Are they good for you?