Be it home maintenance or covering your student finances, access to quick funds provides can really save the day. One way to secure these funds is through an unsecured personal loan. So, what does an unsecured loan mean? An unsecured personal loan essentially does not require you to put up any collateral to obtain the loan. Unlike other types of loans like a housing loan that are backed by some collateral.

In this article we break down the various aspects of an unsecured loan and ways in which you can get it, and give you various examples of unsecured loans.

What is an Unsecured Personal Loan?

An unsecured personal loan is a type of loan that doesn't require collateral, meaning you don't need to pledge assets like a house or car to secure the loan. Instead, lenders approve these loans based on your creditworthiness and ability to repay.

What are the Types of Unsecured Loans?

Types of unsecured loans include:

1. Personal Loans: General-purpose loans for various needs, typically with fixed interest rates and terms.
2. Credit Card Debt: Credit cards are a common form of unsecured revolving credit.
3. Student Loans: Loans to cover education expenses, with various repayment options.
4. Medical Loans: Financing for healthcare expenses, often offered by healthcare providers or specialized lenders.
5. Signature Loans: Loans granted based on your promise to repay, often with higher interest rates.
6. Peer-to-Peer Loans: Borrowing from individuals or online platforms without traditional banks.
7. Lines of Credit: Pre-approved credit limits that you can borrow against as needed.
8. Consolidation Loans: Used to combine multiple debts into one, potentially with a lower interest rate.

Remember that interest rates on unsecured loans can be higher than secured loans, as lenders take on more risk without collateral.

What are the Benefits of Unsecured Personal Loans?

In unsecured personal loans, the lender does not demand any asset as security against the loan. Instead, the lender evaluates you based on creditworthiness by checking your credit score. Your credit score gives an idea of your capacity to repay the loan amount. It varies based on factors like total debt, repayment history, number of accounts, active income, etc.

Some of the most important benefits of these loans include:

• Fast access to money
• Less borrowing restrictions
• No risk of losing your asset as collateral.

Don't have a great credit score? Here is a quick read on how to get yourself a personal loan with bad credit.

Why are Unsecured Loans Preferred?

Unsecured loans can help cover expenses for a range of needs that include but aren’t limited to:

• Medical emergencies
• Travel
• Maintenance
• Debt consolidation
• Wedding costs
• Purchase of equipment
• Higher education

So, people prefer these funds to take care of many expenditures. The main reason, however, is that the lenders do not ask for collateral. All you need to do is complete some formalities and sign the documents.

Is There a Downside to Taking Unsecured Loans?

Yes, the interest rates for unsecured loans is much higher. This is to offset the risk that lenders take by giving you such loans, without security.

• The interest rates are high as the lender has less security
• You need to have a good credit score to be eligible
• The upfront fees can be high for some borrowers (however, some lenders do not charge upfront fees) 

Summing Up

If you do not have collateral assets like property or other assets, unsecured loans can be a perfect choice. Lenders check your credit score to grant quick funds for various purposes.

On the downside, you need to return the amount at comparatively high-interest rates. Also, the choice of your broker or lender plays a vital role in acquiring these funds.

You can get a personal loan on Fi Money in a matter of minutes; especially if you’re pre-approved. Like any unsecured loan, it requires no collateral. The process is pretty straight and paperless, with the loan amount being deposited into your account in minutes.

Frequently Asked Questions

1. Can I apply for an unsecured loan online?

Yes, you can apply for an unsecured loan online. Good credit history with systematic planning for loan repayment is enough to qualify for applying for these loans. You can apply for a loan on Fi Money and get it within minutes.

2. Do I need to pay a processing fee for unsecured loans?

In most cases, you need to pay a small amount of processing fee for an unsecured loan application. These rates vary from lender to lender. Still, the fee can range between 0.5% to 2.5% of the entire amount.

3. Which is the most common unsecured loan?

The most common type of unsecured loan is an unsecured personal loan. These can be used for a variety of purposes, such as debt consolidation, home improvement, medical expenses, or other personal needs.

4. What is the limit of unsecured loans?

The limit of unsecured loans varies depending on the lender and the borrower's creditworthiness. It also depends on policies, the borrowers income, and repayment ability.

5. Why do banks give unsecured loans?

Banks offer unsecured loans primarily to generate revenue through interest charges, diversify their loan portfolio, attract new customers who don't have collateral for secured loans, and meet the needs of existing customers who require additional funds.