What are the Characteristics of an Unsecured Loans?

 

These are loans that are not backed by any asset. In such a loan, the amount is given to the lender without any collateral. So there is no collateral to repossess if the borrower defaults on the loan. This is why most unsecured loans have a higher-interest rate than any other investment like a car loan or home loan. In both loans, the car or the home can be repossessed if the loan is not paid off. Always use a personal loan calculator for double-checking what your lender is charging.

Characteristics of Unsecured Loans

• Utilitarian-
  Unsecured loans can be procured for various reasons like buying food, furniture, or TV, even to fund your honeymoon or a vacation. It can also be used to consolidate all your debt under a single repayment plan.
  

• Credit Score-
  How much you will be lent depends mostly on your credit/CIBIL score and credit history. A bad credit history means that you will be charged a higher interest rate. The lender will look at your past transcripts and how orderly you were in paying off your last debt.
  

• Term or Revolving Loan-
  Term Loans are loans with a set number of payments to be made over an agreed period. A personal loan is an example of a term loan.
  

 
Revolving loans are loans where there is a minimum amount to be paid monthly, but there are no fixed periods. For example, credit cards or line of credit.
 

Must Read: What are the main advantages of a unsecured loan?