Also
known as a signature loan or personal loan, unsecured loans are the ones which
do not require collateral. They are highly dependent on your credit rating and
this makes them harder to get. Your income is also one of the determinants.
They carry less risk for borrower, high risk for lender. Unsecured loans are
simply given to the good image you have. For financial institutions your
financial image is defined by your credit score which and they will take a look
at it beforehand.
A
personal unsecured loan is a loan you are responsible to pay. Unsecured
business loan is a loan your business is responsible to pay. There is also
unsecured business loans with personal guarantee and the guaranteeing person is
obliged to repay the loan in the case of business defaulting.
As
unsecured loans do not require
collateral, it is harder for lender to get his money back if the
borrower is unable to pay. This higher risk makes the lender try to assess the
situation of the borrower in terms of his credit score, income, current loans.
If the lender decides the risk is not too high, he will offer the loan. The
interest rate is determined by the amount of the loan and the risk level. When
amount goes up, interest rate goes lower. When the risk is high, so does
interest rate.
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