What is an unsecured personal loan?

An unsecured personal loan is a category of borrowing where you are not required to provide any asset as security for the loan. In other words, you do not need to pledge property, jewellery, or any other valuable item to obtain the funds. The lender or the financial institution decides whether to approve your application by looking at your financial profile, which includes your credit score, monthly income, employment stability, and overall repayment capacity.

Since there is no collateral backing the loan, the risk for the lender is higher. They typically charge higher interest rates on unsecured personal loans because there is simply no asset backing the loan, which increases their risk. As a result, you may find that the amount you can borrow is determined by your eligibility, and the repayment period is often shorter than what is offered for loans secured against assets.

People choose unsecured personal loans for a variety of reasons like:

• Paying for medical treatments or emergencies
• Managing wedding or travel expenses
• Renovating or furnishing a home
• Consolidating outstanding debts into a single payment
• Covering educational or relocation costs

The approval process for an unsecured personal loan is usually uncomplicated as it involves less paperwork and no asset evaluation. But timely repayment is essential as missed payments can hit your credit rating while making it harder to access credit in the future. Always review the terms and ensure you are comfortable with the repayment obligations before accepting the loan offer.