Unsecured personal loans: no collateral required


Unsecured personal loans are one of the most sought after types of loans for consumers in need of funds for debt consolidation, unexpected expenses etc. This type of loan is considered an installment loan. This means that you will be allowed to repay the borrowed money with interest in the form of fixed monthly payments for a specified period.

Unlike other types of loans, such as home loans and auto loans, unsecured personal loans do not require the item that you purchase as collateral. Lenders depend on your creditworthiness to determine if you can repay it. The higher your credit score, the more likely you are to get approved for an unsecured personal loan.

Does the lack of collateral requirement mean that you can easily default on the loan?

An unsecured personal loan does not require any collateral. However, that doesn’t mean that the lender has no way of getting their money back if you start to default on the loan. They can either file your account with a collection agency, attempt to take over your property, or file a lawsuit to have your wages garnished.

How to qualify for an unsecured personal loan

According to Creditninja’s guide, lenders want to make sure that you can pay off the loan on time as agreed. As a result, they assess different factors to determine the risk of lending you money. Some of these factors include:

Credit score

Credit scores typically range from 300 to 850. This rating range is a tool that lenders use to describe a borrower’s creditworthiness. In addition, it is based on your credit history: total debts, quantity of accounts opened, repayment history, etc.

Below is the range of FICO scores that most financial institutions use to gauge the likelihood that you will pay off the loan on time:

  • 800 to 850 = Excellent
  • 740 to 799 = Very good
  • 670 to 739 = Good
  • 580 to 669 = Medium
  • 300 to 579 = Bad

As mentioned earlier, people with excellent credit scores are often eligible for unsecured personal loans of high amount and low interest rates. Therefore, if you currently have a bad credit rating, it would be best to improve it before applying for an unsecured personal loan.


Having a stable income is a plus when applying for an unsecured personal loan. Lenders will assess your financial situation by seeing if you are earning enough money to fully repay the amount you borrowed. If you have multiple sources of income, this can also be a big advantage.

Debt-to-income ratio

This ratio compares your monthly income and your current debts. Lenders use the debt-to-income ratio to find out if you can accept another loan with your current debt. A low debt-to-debt ratio means a better chance of getting your loan application approved.

Advantages and disadvantages of obtaining an unsecured personal loan

Here are the pros and cons that you might want to know about when it comes to getting an unsecured personal loan:


  • Unsecured personal loans can allow you to get the loan amount faster than with a secured loan, which may require you to submit additional requirements, such as proof of car ownership.
  • Borrowers with a good credit score (720 to 850 on the FICO credit score range) could benefit from interest rates as low as they can get on a secured personal loan. Typically, unsecured personal loans tend to have annual percentage rates that start at around 6%.
  • Unlike what happens in secured personal loans, the lender cannot repossess your property in the event of default.

The inconvenients

  • Unsecured personal loans tend to be riskier for lenders. This is why most of the lenders tend to offer this type of loan with higher interest rates than the rates that you get with secured personal loans.
  • If you don’t repay the loan, your credit score will suffer. The remaining loan balance can be sent to a collection agency. This causes collection calls from a certain company. Also, you could be sued to collect the debt.

Where Can You Get Unsecured Personal Loans?

You can get unsecured personal loans from many different lenders. You can choose to get it from a bank, a credit union, or even an online lender. However, you should keep in mind that each type of lender comes with its own set of pros and cons, interest rates, terms, fees, and loan amounts.

Since many lenders tend to offer unsecured personal loans, it would be best to compare them to find out which one can provide you with what you really need. When it comes to shopping, consider the monthly payment and interest rates.

In a word

Unsecured personal loans can be a great option if you want quick cash. You don’t need to present collateral to the lender just for your loan application to be approved. Not only that, but your assets will not be at risk of foreclosure if you don’t pay back the loan.


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