GUIDESPERSONAL LOANS
What is an Unsecured Personal Loan and How to Get One?
3 MIN • 
LAST EDITED BY PRANAV KARNAD ON APRIL 2, 2025.
LAST EDITED BY PRANAV KARNAD ON APRIL 2, 2025.
GUIDES LAST EDITED BY PRANAV KARNAD ON APRIL 2, 2025.
Be it renovating your house, making that spontaneous trip or covering emergency expenses, unsecured loans are a great way to borrow money without much worry or hassles. But what is an unsecured loan? What are some examples and types of unsecured loans? This guide will answer these questions and more.
An unsecured loan or collateral-free loan is a type of loan that does not require you to pledge any assets as security. Instead, lenders evaluate your creditworthiness to determine your eligibility. Since this is a no-collateral loan, having an excellent credit score is crucial for approval. Lenders typically assess your repayment history, income stability, and overall financial profile before granting an unsecured loan.
Understanding an unsecured loan’s meaning, pros and cons can help borrowers make informed financial decisions. Here are some of the reasons why collateral-free loans can work in your favour:
One of the key advantages of unsecured loans is that you don’t need to provide any security to access funds. Unlike collateral loans, which require you to pledge assets, unsecured loans reduce the risk of losing valuable property if you face repayment delays.
Unlike a home or car loan, which is restricted to specific purchases, collateral-free loans offer complete flexibility in how you use the funds. You can allocate the loan amount for medical expenses, education, travel, or debt consolidation.
Unlike secured loans, which can take over 15 days for approval, no-collateral loans are processed much faster. Many unsecured personal loan lenders offer quick approvals and rapid fund disbursement, making them a convenient option for urgent financial needs.
With Fi Money, you can get an instant personal loan as fast as 5 minutes.
With unsecured loans, the application process is quick. The applicant only needs to submit a completed application form, KYC documents, and income verification documents, eliminating the need for tangible collateral security. This streamlined process makes obtaining collateral-free loans quicker and easier.
Unsecured loans are available to borrowers of all credit profiles. While borrowers with credit scores between 600 and 750 may qualify for collateral-free loans, they may face slightly higher interest rates than those above 750.
Despite unsecured loans being no-collateral loans, there are still some disadvantages that need to be taken into account:
Since unsecured loans carry a higher risk for lenders due to no collateral, meaning no security, the interest rates on unsecured loans tend to be higher compared to secured loans. This compensates for the increased risk of loss in case of repayment default.
Getting a personal loan without collateral might also mean a limited loan amount. The loan amount will be based on the applicant’s income, creditworthiness and financial history.
Most unsecured personal loan lenders follow a quick and simple application process, as no collateral is involved. Here are the key steps in an unsecured loan application process:
Application: The borrower submits a loan application to lenders, providing the necessary details and documents.
Credit Check: Lenders conduct a credit score check to assess the applicant’s risk level. A high credit score increases the chances of approval.
Loan Approval: If the borrower meets the lender’s criteria, their income and repayment ability are reviewed before approving or rejecting the loan.
Loan Terms: Once approved, the lender sets the loan’s interest rate, tenure, repayment terms, and fees. The borrower must review and accept these terms.
Loan Disbursal: After signing the loan agreement, the lender disburses the funds directly to the borrower’s bank account.
Repayment: The borrower begins repaying the unsecured loan through EMIs (Equated Monthly Installments) from the following month. Each EMI consists of both principal and interest.
Unsecured personal loan lenders primarily assess a borrower’s eligibility based on:
CIBIL Score: A higher credit score improves borrowers’ eligibility for unsecured loans. A CIBIL Score of at least 600 is generally considered fair.
Income level: Lenders prefer applicants with sufficient stable income for no-collateral loans.
Employment history: A consistent employment record strengthens your chances of getting approved for an unsecured loan.
The following are some of the most common types of unsecured loans in India:
Unsecured Personal Loans mean that you are not required to pledge your assets as security. They’re also called no-collateral loans for the same reason.
Unsecured Credit Cards do not require a security deposit or collateral for approval. Unlike secured credit cards, which require a cash deposit as a guarantee, unsecured credit cards are issued based on the applicant’s credit score, income, and repayment history.
An unsecured education loan is a student loan that does not require the borrower (or their co-applicant) to provide collateral such as property, fixed deposits, or other assets. Instead, lenders approve the loan based on factors like the student's academic record, the institution's credibility, future earning potential, and the co-applicant's financial stability.
An unsecured small business loan is a type of business loan that does not require the borrower to pledge collateral such as property, equipment, or inventory. Instead, lenders approve the loan based on the business's financial health, cash flow, credit score, and repayment capacity.
A payday loan is a short-term, high-interest loan designed to provide quick cash to borrowers who need funds before their next paycheck. These are typically unsecured loans, meaning they don’t require collateral. However, one must note that payday loans come with extremely high interest rates and fees.
| Factors | Secured Loans | Unsecured Loans |
| Collateral | Required (e.g., home, car, gold) | Not required |
| Interest rates | Generally lower | Potentially higher |
| Risk to borrower | Risk of losing collateral | Impact on credit score |
| Loan amount | Potentially higher | Generally lower |
| Approval time | Slower | Faster |
| Examples | Home loans, vehicle loans, gold loans | Personal loans, credit cards, education loans |
The process for unsecured personal loan lenders typically remains the same. Here’s a step-by-step guide on how to apply for unsecured personal loans online:
Keep track of your CIBIL Score regularly and follow healthy credit practices to improve your creditworthiness.
While applying for a non-collateral loan, you will need documents such as your ID (PAN Card, Aadhaar details, etc.), Address proof, and Income proof. Ensure you have them handy.
It’s best to consider multiple offers and choose the most suitable unsecured loan for yourself. You can compare based on interest rates, fees, processing time, disbursal time etc.
You can apply on the websites or apps of different lenders or NBFCs. Most of them have a simplified process.
Platforms like Fi Money offer instant loan approvals and quick disbursal. This time can vary depending on lenders.
To get a clear idea of what is a secured and unsecured loan, it is essential to know unsecured loan’s meaning as well as that of other related terminologies.
An unsecured loan is a type of loan that doesn't require you to pledge any assets as collateral with the bank or NBFC. Instead, these loans are approved based on the borrower’s creditworthiness, income stability, and repayment capacity.
A tangible collateral security is a physical asset that a borrower can use as collateral for different types of secured loans. These could include real estate, vehicles, gold, etc. Unsecured loans require no collateral or security.
No collateral means not having to pledge any assets as security. This applies to unsecured loans, where you can take a loan without collateral.
No collateral loans are generally listed under non-current liabilities (dues to be paid after a year). Non-current liabilities are usually listed as separate entries on a company’s Balance Sheet. Businesses often compare these liabilities with their cash flow to determine whether they are financially capable of meeting their long-term obligations. Long-term liabilities serve as a crucial indicator of a company's solvency and its ability to sustain operations over time.
The maximum amount one can borrow with an unsecured loan can vary amongst lenders and NBFCs. Through Fi Money, one can get a loan ranging from ₹10,000 to ₹5 Lakh.
Not repaying the loan on time could negatively impact your credit score, result in legal action against the defaulter, and make it difficult to get credit in the future.
While creditworthiness is an essential factor for unsecured loan approvals, it is not impossible to get a no-collateral loan with a low CIBIL score. Consider checking eligibility criteria for different lenders and NBFCs, using a co-applicant or guarantor, etc. If your CIBIL score is low, you can consider other options, like bad credit loans.
Unsecured loans can be used for personal expenses including weddings, medical emergencies, home interior decoration, travel, education and more.
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.
