Unsecured loans are loans that are based on the creditworthiness of a borrower without the need for any type of collateral. Borrower’s creditworthiness is checked based on their past loans history and income. In other cases, demographic details are also considered as factors to check the creditworthiness of a borrower while giving an unsecured loan or personal loan. These loans are also known as signature loans since your signature in the agreement is all that you have to bring to the table. To get an unsecured loan, your credit score is very important.
Types of unsecured personal loans:
- Personal loans, in most cases loans acquired through banks, NBFCs and online portals are termed as personal loans. These are a type of unsecured loans.
- Student loans are often unsecured. In most cases, it does not require any collateral to avail.
- Credit Cards are a common type of unsecured loans. Although you might not consider it as a loan, you actually borrow money and use your credit card to spend it.
Comparing secured & unsecured loans:
- Home loans are secured loans where if you stop making payments, your Lender have the right to seize your home.
- Auto Loans are also a type of secured loan. However, there are many lenders who provide personal or unsecured auto loans.
Parameters for unsecured loan eligibility:
- Credit score: You must have a high credit score to avail an unsecured loan. To maintain a high credit score you need to make all your credit card and other loan payments on time. If you have settled off / written off / overdue in any loan or credit card due, your score takes a big hit making it difficult to avail a loan.
- Income: The amount you can avail through an unsecured loan will highly depend on your income. Lenders will thoroughly verify your income based on either bank statement or salary slip. They will verify your current debts. The final amount will highly depend on your debt-to-income ratio.
- Demography: Your age, location, stay type also has a significant role in availing an unsecured loan. These parameters differ from company to company.