Thinking of applying for a personal loan but unsure why it’s called unsecured? Wondering how it affects your chances of approval and the interest you’ll pay?
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A personal loan is considered unsecured because it doesn’t require any collateral such as property, gold, or fixed deposits—as security. Instead, lenders rely on your credit score, income, job stability, and repayment history to decide whether to approve your loan.
This setup benefits borrowers who need quick funds without the hassle of pledging assets. However, because there’s no collateral to reduce the lender’s risk, interest rates on unsecured personal loans are usually higher compared to secured loans. Also, those with a low credit score or unstable income may face rejections or get offers with unfavorable terms.