What is an unsecured personal loan? This loan is a type of borrowing that doesn’t require collateral, such as a car or property. Instead, lenders grant these loans based on the borrower’s creditworthiness and financial history. It offers a practical solution for individuals who may not have valuable assets to pledge or prefer not to risk their possessions. With no collateral required, unsecured personal loans provide a faster and more accessible borrowing option. However, they often come with higher interest rates than secured loans, reflecting the increased risk for lenders. Use Beem to compare personal loan options to achieve your financial goals and move toward a more secure financial future.
Is A Personal Loan Secured Or Unsecured?
Before understanding what is an unsecured personal loan, let’s clarify the distinction between secured and unsecured loans. A personal loan can be either of the two — secured or unsecured; the critical difference is the collateral requirement.
Secured Loan
A secured personal loan involves pledging an asset, such as a car or property, as collateral. If the borrower defaults, the lender is well within their rights to seize the collateral to recover the outstanding amount. Secured loans are considered less risky for lenders, often resulting in lower interest rates and more significant borrowing limits. However, borrowers risk losing their valuable assets if they fail to repay timely.
Unsecured Loan
An unsecured personal loan is the kind that does not require any collateral. Lenders grant these loans based on the borrower’s creditworthiness, income, and financial history. Since there’s no asset at stake, unsecured loans are more accessible to individuals without valuable possessions or those unwilling to put their assets at risk. However, as a result of the higher risk involved for lenders, unsecured personal loans typically come with higher interest rates. They may have lower borrowing limits compared to secured loans.
What Is An Unsecured Personal Loan?
An unsecured personal loan, or a signature loan, is granted without collateral requirements. Instead of relying on assets, lenders assess the borrower’s creditworthiness and financial history to gauge their ability to repay the loan. The decision to grant an unsecured personal loan is primarily based on factors such as credit score, income, employment history, debt-to-income ratio, and overall financial stability.
Here’s a diverse range of reputable companies that offer unsecured personal loans. From competitive Annual Percentage Rates (APRs) to varying borrowing amount limits, these lenders cater to various financial needs, providing borrowers with flexible options for achieving their financial goals.
| Company Name | APR Range | Borrowing Amount Limit |
| PenFed | 7.74- 17.99% | $600 – $50,000 |
| Happy Money | 11.52- 24.81% | $5,000 – $50,000 |
| Upgrade | 8.49- 35.99% | $1,000 – $50,000 |
| LightStream | 7.99- 25.49% | $5,000 – $100,000 |
| Upstart | 4.60- 35.99% | $1,000 – $50,000 |
| Avant | 9.95% – 35.99% | $2,000 – $35,000 |
| Best Egg | 8.99- 35.99% | $2,000 – $50,000 |
| Achieve | 7.99- 35.99% | $5,000 – $50,000 |
| LendingClub | 9.57- 35.99% | $1,000 – $40,000 |
Unsecured vs. Secured Loan: What’s The Difference?
Now that we have answered the question, what is an unsecured personal loan, let’s compare unsecured and secured loans, highlighting their distinct features, risks, and benefits. Understanding these key differences will empower borrowers to make well-informed decisions when seeking financial assistance for their diverse needs.
| Aspect | Unsecured Loan | Secured Loan |
| Collateral Requirement | No collateral required | Collateral (e.g., car, property) required |
| Risk for Borrower | Lower risk, as no assets at stake | Higher risk, assets at risk if the default |
| Risk for Lender | Higher risk, no collateral to claim | Lower-risk collateral acts as a security |
| Interest Rates | Generally, higher interest rates | Generally, lower interest rates |
| Loan Amount Limit | Often lower loan amounts are available | Often higher loan amounts are available |
| Repayment Terms | Shorter repayment periods | Longer repayment periods |
| Approval Process | Creditworthiness-based approval | Collateral assessment and credit check |
| Processing Time | Faster approval and processing | Longer processing due to collateral |
| Typical Use | Personal expenses, small projects | Large projects, major purchases |
| Example | Credit card, personal loan | Mortgage, auto loan |
How To Get An Unsecured Personal Loan
Obtaining an unsecured personal loan can be a straightforward process if done with careful planning and a clear understanding of the requirements.
- Check Your Credit Score: Your credit score impacts your loan eligibility and interest rate. Please obtain a copy of your credit report and review it for errors or discrepancies. Take measures to improve your credit score if necessary. The Beem Credit Score Simulator is a great tool to help you learn how decisions impact your credit.
- Research Lenders: Compare different lenders that offer unsecured personal loans. Find reputable lenders who provide favorable terms, transparent fees, and excellent customer service. Online lenders, credit unions, and traditional banks are popular options.
- Gather Necessary Documents: Lenders will require documents to verify your identity, income, and financial information. Gather recent pay stubs, tax returns, bank statements, and other relevant documentation to speed up the loan application process.
- Apply for the Loan: Complete the loan application with accurate information. Many lenders offer online application options, which are convenient and save time. Be honest and transparent in providing all the required details.
- Review Loan Terms: Review the loan terms, including interest rates, repayment period, and associated fees. Understand the total cost of borrowing and ensure that the monthly payments fit within your budget.
- Approval and Funds Disbursement: If your loan application is approved, you’ll receive the funds in your bank account. Use the loan responsibly for your intended purpose. You can use Beem to monitor your debt by viewing your debt-to-income ratio and acting on expert suggestions, whether for consolidating debt, funding a home improvement project, or covering unexpected expenses.
However, securing an unsecured personal loan involves careful preparation, thorough research, and responsible borrowing. Following these steps can help you get a loan that meets your financial needs while setting a solid foundation for your financial future.
Conclusion
So, what is an unsecured personal loan? In conclusion, this is a type of loan granted without collateral. Lenders evaluate the borrower’s credit score and financial history to determine eligibility. Unsecured loans are accessible to borrowers who may not possess valuable assets or prefer not to pledge collateral. However, the higher risk for lenders translates to higher interest rates than secured loans. When considering a personal loan, carefully assess your financial situation and creditworthiness to determine whether an unsecured loan aligns with your needs. Use Beem to stay organized and manage your payment if you need financial assistance. Try the Beem app and get the best loan options ranging from $500 to $100,000 for your needs.
FAQs
1. What Is an Unsecured Personal Loan?
An unsecured personal loan is a type of loan that doesn’t require collateral. Lenders grant these loans based on the borrower’s creditworthiness, income, and financial history.
2. How Does an Unsecured Personal Loan Differ From a Secured Loan?
The critical difference lies in the collateral requirement. Secured loans mandate the pledging of assets as security, while unsecured loans don’t involve collateral.
3. Are Unsecured Personal Loans Riskier for Borrowers?
While unsecured personal loans don’t put any assets at risk, the higher interest rates may make them financially riskier for borrowers in the long run. Borrowers must be mindful of their ability to repay the loan on time.
