Unsecured Loans – Meaning, Benefits and Examples of Unsecured Loan | Bajaj Finance Limited (2024)

FAQs

What are unsecured loans examples? ›

Credit cards, student loans, and personal loans are examples of unsecured loans. If a borrower defaults on an unsecured loan, the lender may commission a collection agency to collect the debt or take the borrower to court.

Unsecured loans are loans that don't require collateral. They're also referred to as signature loans because a signature is all that's needed if you meet the lender's borrowing requirements.

Examples of unsecured debt include credit cards, medical bills, utility bills, and other instances in which credit was given without any collateral requirement. Unsecured loans are particularly risky for lenders because the borrower might choose to default on the loan through bankruptcy.

Because unsecured loans don't require collateral, they are riskier for lenders than secured loans—instead of seizing assets if a borrower defaults, banks are limited to collection actions like wage garnishment.

Getting an unsecured personal loan may be a good idea if it's financing a move that will ultimately save you money, such as paying off high-interest credit card debt. But before you apply for an unsecured loan, it's important to understand the benefits and risks, as well as potential alternatives to borrowing.

That said, an unsecured loan may be the best choice if you don't want to place your assets at risk. Interest rates may be slightly higher, but they could still be competitive if you have good credit.

Defaulting on an Unsecured Loan

As mentioned previously, however, a collection agency may try to sue you for the unpaid amounts you owe, attempt to garnish your wages, or place a lien on your home through a court order. 5 And, as with a secured loan, you can expect a serious impact on your credit score.

How much can you get for an unsecured loan? ›

Personal loan amounts vary by lender, but some lenders allow consumers to borrow up to $100,000. The amount a lender may approve you to borrow will depend on various factors, such as your credit score, income and debt-to-income ratio (DTI).

Unsecured personal loans are loans that you can take out based on your creditworthiness and a promise to repay the loan. You don't need to offer any collateral, and you might benefit from a low interest rate and predictable repayment terms.

You may receive phone calls, letters, e-mails or text messages from the collection company to recover the debt. If your loan is unsecured, the lender or debt collector can take you to court to seek repayment through wage garnishment or place a lien on an asset you own such as your house.

Unsecured debt isn't backed by any property, but a lender can try to reclaim their money in the court system. They can pursue a court judgement through a debt collection lawsuit. The borrower is summoned to court, where failure to show up grants the decision in favor of the lender.

Just because an unsecured loan is not secured does not mean there are no consequences if you fail to repay the debt or fail to make your payments on time. Most creditors charge hefty late fees each month that your payment is not received on time.

Payday loans are considered a form of “unsecured” debt, which means you do not have to give the lender any collateral, or put anything up in return like if you went to a pawn shop.

Defaulting on an Unsecured Loan

As mentioned previously, however, a collection agency may try to sue you for the unpaid amounts you owe, attempt to garnish your wages, or place a lien on your home through a court order. 5 And, as with a secured loan, you can expect a serious impact on your credit score.

Unsecured refers to a debt or obligation that is not backed by any sort of collateral. Collateral is property or other valuable assets which a borrower offers as a way to secure the loan, which is found in secured debt. In an unsecured loan, the lender will loan funds based on other borrower qualifying factors.

Unsecured loans are also known as personal loans. This involves borrowing money from a bank or other lender. You agree to make regular payments until the loan is repaid in full, together with any interest owed.