Unsecured Loans

Most loans that we hear about are secured loans. This means that they require you to pledge some of your assets to guarantee repayment of the loans. These assets usually include your house, vehicle, jewelry etc. In the event that you default on the repayment of the loan, the lender has the right to possess the asset that was pledged to him and recover his payment through sale of that asset. So, what do people who do not have any assets to pledge do? For instance, if you are a tenant and not a homeowner or a student and do not have assets of your own yet, can you never acquire a loan? Well, the answer is- ‘Of course, you can get a loan. That’s what Personal unsecured loans are for!’

As the name suggests, personal unsecured loans are not secured against any of your assets. This means that there is no collateral required from you to avail this loan. The loan is provided to simply on your signature. This is why personal unsecured loans are also called ‘Signature Loans.’ These loans are designed specially keeping in mind those people who do not have any assets to pledge, but are fully capable of paying back the loan they have borrowed. As is obvious, this type of loan is especially popular among tenants and students.

In the case of secured loans, the amount of loan that is approved and the repayment plan for the loan not only depend upon the repayment capacity of the borrower, but also on the value of the collateral. The higher the value of the collateral, higher will be the amount of loan approved and the repayment plan will be equally flexible. On the other hand, since personal unsecured loans do not have any collateral, the rules of getting an personal unsecured loan are slightly different.

To begin with, the absence of a collateral means that the risk to the lender is comparatively higher than providing secured loans. For taking this risk and lending you the money, the lender of a personal unsecured loan will charge you a higher interest than that of secured loans. On the other hand, since the default of payment is not guaranteed against any asset, the lender of a personal unsecured loan will want the loan to be repaid in as short a time period as possible. This is why most personal unsecured loans come with a much shorter tenure than secured loans. The tenure is usually between 5-10 years only. Additionally, since there is no real guarantee of repayment, the amount of loan available is also usually limited to $25,000.

Your repayment potential is the only real factor in getting a personal loan. This means that you need to have a well paying job and sufficient income to cover for your regular expenses as well as loan repayment. On the other hand, your credit report contains your credit history and this will also be an important factor in getting your unsecure loan approved. The better your credit ratings are, the higher your chances of getting a personal unsecured loan will be.

For more information about obtaining an personal unsecured loan see Personal Unsecured Loans