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Unsecured Personal Loans: Everything You Need To Know

You’ve come to the right place to learn more about unsecured personal loans. An unsecured loan is a loan that does not require an asset to be attached. In other words, this means you can get a loan without having to put up something like your car, boat, motorbike, caravan against the loan. 

People often choose unsecured personal loans for securing quick access to cash. Unlike a mortgage, unsecured loans are provided on the basis of the borrower’s word to repay the loan amount. The process involves documentation and signing contracts. The lender can’t seize anything if the borrower fails to repay the loan. 

Personal Loan Pal can find you lenders offering unsecured personal loans. Just submit an application and let us do the hard work for you!

What are unsecured personal loans?

An unsecured loan is usually assessed based on the borrower’s credit score, instead of by collaterals. A credit score represents the borrower’s creditworthiness and his ability to repay debt. Other terms used for this type of loans are personal loans or signature loans. 

The terms of unsecured loans including approval and receipt are decided based on the credit score of the borrower. The higher the credit score, the more chance of loan approval. 

Unsecured loans are typically used for small, short-term expenses, such as funeral costs or medical crises. These are intended to be repaid within a year, though the term varies depending on the loan amount. This also depends on the relationship between the lender and the borrower.

What is the difference between a secured and unsecured personal loan?

A secured loan is obtained against any of your property, like your car or house. That means if you fail to pay back the debt, the loan provider could seize the property and sell it to receive the debt. So, if you’ve attached security against the loan, the lender could be more likely to lend you a larger amount. 

As compared to this, an unsecured loan is not obtained against your property. Instead, it is secured on the basis of your credit score. 

Since an unsecured loan doesn’t involve any security, there is a higher risk for the lender. Thus, the lender may charge an interest rate higher than that on a secured personal loan.

How does an unsecured personal loan work?

Unsecured loans require higher credit scores, which is the most important factor in deciding whether you will receive the loan. With a good credit score, you could pay less interest and have more loan options available to you.  

In some cases, the lender allows the applicant with insufficient credit to provide a co-signer who takes the legal obligation to repay the loan should the borrower default. The default happens when the borrower fails to pay back the interest and principal of the loan. 

Lenders offer different types of unsecured personal loans, like:

Signature loan

This most basic unsecured loan as it only requires your signature. You can obtain these loans through credit unions, banks and other online lenders. You can use the money for a wide variety of purposes, such as medical costs and car repairs. Signature loans are instalment loans that you pay back with a fixed weekly, fortnightly or monthly payment. 

A personal line of credit

On this type of unsecured personal loan, you don’t take the entire loan proceeds at once, rather you take a certain amount and repay it as needed. For instance, you could have a $10,000 unsecured personal line of credit and withdraw $2,000 of it for any purpose. 

As you pay the balance, the line of credit becomes available again. You pay interest on the credit line and any other account keeping fees. 

Credit cards as loans

In this type of unsecured personal loan, you can borrow the needed amount of money using your issued credit card. For more money later, you can charge more to the credit card or up your credit limit.

Though with this option, you can borrow money instantly, you could pay a high-interest rate on credit cards. 

Student loan

These loans are available to students and feature flexible payment options, interest subsidies, etc. The only requirement for this type of loan is you should be a student, regardless of your credit score. 

Peer to peer loan

In this type of loan, you borrow from individuals, instead of from a traditional lender like a bank or a financial institution. You post your loan request online, and interested lenders step in to fund your loan. Peer to peer loans involve fixed-rate instalment payments and competitive interest rates. You can read more about peer to peer lending on the ASIC’s Moneysmart website.

Are unsecured personal loans good? 

Unsecured personal loans come with several benefits. You do not need an asset to use as security. You can use the unsecured loan amount for various purposes ranging from the home renovation or a holiday through medical expenses. 

This type of personal loan involves a quick application process. You often apply for an unsecured personal loan online and get approved within a few days or even a few hours. Some lenders also avail same day unsecured personal loans. With a personal loan, you can repay the loan in instalments over a period of time. 

Do unsecured personal loans hurt your credit?

An unsecured personal loan may affect your credit score. On the other hand, repaying your loan in full can improve your overall credit score, depending on a number of other factors.

Ready to Apply?

Now you’re all up to speed with all things personal loans, you can head to our homepage to apply. Personal Loan Pal is a lender-finder, meaning we do the hard work for you. You won’t have to worry about researching and choosing the best lender, Personal loan Pal will match you with one. All you need to do is select your desired amount, fill out the application and leave the rest up to us! It’s that easy!