Unsecured loans are those loans that are not accompanied by any collateral; these loans are more risky to the lender because they do not have any leverage over the loan seeker. Financial institutions such as banks offer both unsecured and secured loans. Secured loans unlike unsecured loans a loan seeker must own some valuable assets for him or her to be able to qualify for a loan. Banks usually charge higher interest rates for unsecured loans because they are exposed to higher risks.
There are several aspects that money lender has to consider before granting a loan seeker unsecured loan, one of these aspects is the loan seeker’s credit record because those the people that have good credit record have a lower chance of missing their loan payments. A loan seeker is required to fill in a loan application when applying for a secured or an unsecured loan, the information that the person provides is used to determine whether or not the person qualifies for the loan.
The interest that is charged on unsecured loan is subject to change, when the repo rate of a country increases financial institutions are most likely to adjust their interest rates. When a person wants an unsecured loan he or she must be willing to pay high interest rates. When the repo rate of a country is very high people are less inclined to apply for both secured and unsecured loans