Unsecured loans, also called personal loans or signature loans, involve borrowing money without putting up any collateral. Because there is no home or car to repossess if you don’t make your payments, these loans are considerably riskier for lenders. Extra risk means lenders must charge higher interest rates and require higher credit scores.
Unsecured personal loans involve much less paperwork than secured loans like mortgages, but more than products like payday advances. The terms are generally shorter, from two to five years, and loan amounts are usually smaller. Unsecured loans can be used for almost anything — like debt consolidation, college tuition, medical bills, a business loan or the trip of a lifetime.
It’s not easy to get approved for an unsecured loan with bad credit, and the rates for these loans are quite high. However, some lenders might offer you a better deal if you have a co-signer.
What is an unsecured loan?
An unsecured loan is issued based on the borrower’s creditworthiness, instead of some type of collateral. An unsecured loan can be obtained without the use of property as collateral for processing the loan. Borrowers generally must have high credit ratings to be approved for an unsecured loan.