What Are Unsecured Personal Loans?

Unsecured Personal Loans Vs. the Secured Loans

There are various types of loans that include both secured and unsecured. A secured loan is that which is backed by collateral. For example, a mortgage loan or auto financing where the lender will mark lien or hold the asset documents as security. While on the other hand, when there is no guarantee or support behind a loan, then it is known as an unsecured loan. These unsecured loans are granted based on the creditworthiness of the borrower, and the financial institutions always considered the credit ratings of the applicant to avoid disbursing unsecured loans to someone who has a history of defaults or late payments.

Types of Personal Loan

An unsecured loan can come in many forms. Some of the common types include credit cards, cash loans, or instant cash. Usually, you will have to apply for the unsecured loan, and if your request gets approved, you will get the sanction of the loan, with the terms of repayment and the tenure where you have to make the whole repayment every month. Unlike secured loans, the unsecured loans will always carry a higher interest rate. Financial institutions take a risk by releasing funds to a person without holding any security, so they charge a higher interest rate.