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What is Unsecured Personal Loan?

Unsecured Personal Loan

Do you require money for your home renovation for some upcoming family event? Do you want to buy a recently launched cellphone? Did you see a beautiful gold neckpiece at a store and can’t keep your mind off it? There could be a number of PERSONAL reasons you might need extra money for.

One of the excellent ways to raise money to fulfill your short-term goals is to take an unsecured personal loan. Most of the banks today promise to provide unsecured personal loans within a day or two of completing all formalities, so that you don’t have to wait to settle your urgent expenses.

Unsecured Personal Loan

An unsecured personal loan is the one which is NOT secured by any collateral, for instance a house or a car; as opposed to a secured loan that is only granted at the covenant of collateral. An unsecured loan is granted on the basis of the debtor’s potential to pay back the loan. If you don’t have any valuable asset or property that can be kept as a security but you do have a good credit history, then unsecured personal loan can be a good option for you.

Is good Credit Rating a must?

In most cases, YES! Most of the banks will not provide you an unsecured loan if you don’t have a good credit rating. But a few banks and lenders now provide unsecured personal loans to those who have a low credit rating, making it possible for them to realize their short-term goals.

But there is a catch here! You may come across many lenders who will be ready to give you unsecured loans without checking your credibility. But the rate of interest they charge might be too high and you might not be able to repay the loan at all. So, BEWARE of such no-credit rating-check loans.

Types of Unsecured Personal Loans

There are various types of unsecured personal loans and you can pick the one that suits your requirements the best.

Student loans

Also known as educational loans, student loans are often the best choice for students as there are a number of benefits. The benefits usually range from interest subsidies, grace period, flexible repayments and many more. In the case of student loan, the credit rating usually doesn’t matter. But you need to a student for sure!

Signature loans

Signature loans are giving on the basis of a mere SIGNATURE- an assurance to pay! Signature loans are a good option if your credit rating is good. Also, these loans help you improve your credit rating.

Credit cards

Credit cards are also a type of unsecured loans. It is another way of borrowing. Credit cards make borrowing easier as you can buy anything, anytime, anywhere! One of the drawbacks of credit cards is that the rate of interest is comparatively higher and the borrowed amount has to be paid back quickly.

Peer-to-peer loans

Instead of borrowing from a bank, in case of peer-to-peer loans, you borrow from individuals. There might be a number of individuals online, who would want to lend you money on the basis of your credit rating.

Benefits of Unsecured Personal Loans

Some of the benefits of unsecured loans are listed below.

  • You don’t have to have sometime to pledge! The number of people applying for an unsecured personal loan is more than those applying for a secured one. This is because the percentage of people with no valuable asset or property to covenant is more than the people with assets to pledge. Hence, unsecured loans become the first choice for these people.
  • Unsecured personal loans can be used for various purposes, such as for buying a gadget, renovating your house, buying a two-wheeler and so on. You can certainly fulfill your short-term goals by getting such loans.
  • These loans help the debtor to build/rebuild their credit rating, by making on-time payments.
  • Another important benefit of unsecured personal loans is the requirement of minimum documentation and flexibility. There is no need to present all the personal documents before the lender.

Unsecured personal loans can be an excellent option to make your not-so-big dreams come true. But always remember to carefully go through the terms and fees of the loan provider before you seal the deal. Choose wisely.

Happy Banking!

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Parul Mahajan is a Post Graduate in Gender Studies from Ambedkar University, Delhi and also holds a Bachelor of Arts degree in English Literature from Daulat Ram College, Delhi University. She is the author of ““Warring Over Religion and Feminism”, a Masters level Dissertation. Parul has also interned with Vimochana, a Bangalore based women’s organization working on various women’s issues.


  1. Unsecured personal loans are offered especially by banks who has a tie up with educational institutes especially for post graduate courses such as MBA. Banks look upon the institutions and based on the past performance of the institute wrt the ROI offered to its students, banks give laxity in loans. So for example, Indian School of Business gives unsecured loan of upto 30 lacs to students, whereas normally unsecured loans are offered upto 4 lacs.

  2. A real relief for those who want some easy and urgent money. Unsecured loans in a situation where there is dire need of cash can come to your help without much hassle. The only pitfall being the high interest rates. With the introduction of these types of loans, life has become a lot easier. Education or any other short term goals which requires instant cash can be easily obtained through these loans.

  3. UNSECURED LOANS as the name itself suggests that you don’t have to secure or mortgage anything to the bank for taking a loan. These loans can be taken for fulfilling your small wishes or needs as well. It may be buying a smart phone, jewelry or some other tempting small wishes. All banks give this facility to their costumers and thus help in fulfilling their small needs and thus bringing a smile on their faces!!!

  4. Unsecured loans can be taken without mortgaging anything, it is like borrowing money for a short period of time with a promise to pay back with interest. It can be taken to meet short-term needs, like buying a car, purchasing gold,etc. However, unsecured loans usually have a higher rates of interest since nothing is given as a mortgage and is also risky for the lenders. Having a good creditworthiness can be helpful in getting a higher loan.

  5. Unsecured loans are often only for small amounts of money, since they are high risk with no collateral to cover the loan if the borrower cannot make their repayments.
    Since the interest rate is also likely to be high, you have the risk of paying more in interest and default fees than the principle amount if you default many times. Maybe reconsider taking out an unsecured personal loan and consider a gold loan or collateral loan instead. Interest rates are lower.

  6. This insecure personal loan, is in some kind of way, most secure for persons who don’t possess anything to offer in exchange of money. Yet, is absolutely helpful not to accomplish big goals but you can reach smaller targets that can make your life easier and prepare yourself for the future.

  7. It is really interesting to know that such a lot of varieties of unsecured personal loans exist. Loans for students are being widely used in our county but there are still more types of loans that are not being used by pubic. This may be because of the unawareness of the people about the same.

  8. Credit cards are the most popular of the unsecured loans. It is also called the plastic money. Student loan is another great option in this type. The only drawback is the high rate of interest. But it is a good choice for many of us who do not have any asset or property.

  9. We use several different types unsecured loans every day. It is a way of life nowadays for the most of the population. In the past first there was money and then people bought what they wished for. Today the desire and wishes come first and repayment comes last, including some extra payment for a possibility of fulfilling your dreams. Great article, nicely explained.


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