Are personal loans secured or unsecured?

Most personal loans are unsecured which means you do not need to pledge any asset or collateral to obtain the loan. The approval process for unsecured personal loans relies primarily on your creditworthiness, income, employment stability, and financial history. Lenders estimate your ability to repay the loan based on these factors, rather than on any security you can offer. Because there is no collateral connected with, unsecured personal loans present a higher risk to lenders. As a result, interest rates for unsecured personal loans generally start from around 12% per annum, which is higher than what is typically charged for secured loans.

Unsecured personal loans are suitable for a wide range of personal expenses like medical emergencies, home renovations, travel, education, or even debt consolidation. The loan amount you are eligible for, as well as the tenure will depend on your financial profile and the lender’s assessment.

But some lenders also offer secured personal loans. In this case, you are required to pledge an asset, for example, property, fixed deposits, or other valuables as collateral. Secured personal loans normally come with lower interest rates and may allow you to borrow larger amounts or opt for longer repayment periods. If you find it difficult to repay a secured loan as agreed the lender or the financial institution can take possession of the asset you offered as security in order to recover the outstanding amount. This means that the property or item you pledged may be repossessed and sold by the lender to settle the dues if the loan remains unpaid.