May 23, 2022


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Unsecured Personal Loans: No Collateral Needed

Unsecured Personal Loans: No Collateral Needed

Unsecured personal loans are one of the most sought-after types of loans for consumers in need of funds for debt consolidation, unexpected expenses, and the like. This type of loan is considered an installment loan. That means you’ll be allowed to repay the borrowed money with interest in the form of fixed monthly payments for a set period.

Unlike other loan types, such as home loans and auto loans, unsecured personal loans don’t require the item you’re purchasing for collateral. Lenders depend on your creditworthiness to determine if you can pay back. The higher your credit score means the higher your chances of getting approved for an unsecured personal loan.

Does Lack Of Collateral Requirement Mean You Can Easily Default On The Loan?

An unsecured personal loan doesn’t require you to pledge any collateral. However, it doesn’t mean the lender has no way to recover their money if you start to default on the loan. They can either file your account to a collection agency, attempt to take hold of your property, or file a case in court to get your wages garnished.

How To Qualify For An Unsecured Personal Loan

According to the Creditninja’s guide, lenders want to make sure that you can repay the loan on time as agreed. As a result, they evaluate different factors to determine the risk of lending you money. Some of these factors include:

Credit Score

Credit scores typically range from a number of 300 to 850. This score range is a tool that lenders use in order to depict a borrower’s creditworthiness. Moreover, it is based on your credit history: total debts, quantity of open accounts, repayment history, and the like.

Below is the FICO score range that most financial institutions use to assess the probability of you paying back the loan on time:

  • 800 to 850 = Excellent
  • 740 to 799 = Very Good
  • 670 to 739 = Good
  • 580 to 669= Fair
  • 300 to 579= Poor

As mentioned earlier, individuals with excellent credit scores often qualify for unsecured personal loans of high loan amounts and low interest rates. Therefore, if you currently have a poor credit score, it would be best to improve it before applying for an unsecured personal loan.


Having a stable income is a plus when applying for an unsecured personal loan. Lenders will evaluate your financial status by checking if you make enough money to repay the amount you borrowed in full. If you have more than one source of income, that can also be a great advantage.

Debt-to-income Ratio

This ratio compares your monthly income and current debts. Lenders use the debt-to-income ratio to know if you can handle having another loan with your current debt. A low debt-to-income ratio means better chances of getting your loan application approved.

Pros and Cons of Getting an Unsecured Personal Loan

The following are the pros and cons you might want to know when it comes to getting an unsecured personal loan:


  • Unsecured personal loans can get you the loan amount faster than with a secured loan, which might require you to present additional requirements like proof of ownership for a car.
  • Borrowers with a strong credit score (720 to 850 on the FICO credit score range) might qualify for interest rates as low as what they can get on a secured personal loan. Typically, unsecured personal loans tend to have annual percentage rates that start at about 6%.
  • Unlike what obtains in secured personal loans, the lender can’t repossess your property in case of default.


  • Unsecured personal loans tend to be riskier for lenders. That’s  why most lenders tend to offer this loan type with higher interest rates compared to rates you get with secured personal loans.
  • If you fail to repay the loan, your credit score will suffer from its negative effect. The loan balance remaining can be sent to a debt collecting agency. This prompts collection calls from a certain company. Also, you might get sued to recover the debt.

Where Can You Get Unsecured Personal Loans?

You can get unsecured personal loans from many different lenders. You can either choose to get it from a bank, a credit union, or even through an online lender. However, you should keep in mind that each type of lender carries its own set of pros and cons, loan interest rates, terms, fees, and loan amounts.

Since a lot of lenders tend to offer unsecured personal loans, it would be best to compare them to know which one can provide you what you really need. When it comes to shopping around, consider the monthly payment and interest rates.

In A Nutshell

Unsecured personal loans can be a great option if you want money fast. You don’t need to present any collateral to the lender just to get your loan application approved. Not only that, but your assets won’t face any risk of seizure if you default on the loan.