An unsecured personal loan comes with different requirements than secured personal loans. When you take out a secured loan, the lender requires you to put up some form of collateral before they will approve you for the loan. This way, the lender has something of value to keep and sell if you cannot repay the loan as you’ve agreed. If this happens, your credit will certainly be ruined.
The consequences you face for not paying back a secured personal loan are pretty heavy. The asset you pledged as collateral is lost and your credit destroyed. To add insult to injury, if the item you put up as collateral does not sell for enough money to fully pay off the loan, you would still likely owe the balance to the lender.
Since no collateral is being put up when you take out an unsecured personal loan, being approved depends on your ability to pay the loan back per the signed agreement.
To be approved for an unsecured personal loan, you will need to prove to your lender that you have sufficient income to repay the money according to your agreement. In this case, the lender cannot rely on selling your valuable asset if you cannot repay the loan.
To gain approval for an unsecured personal loan, you must have a good credit score. Unfortunately, if you do not have much of a loan history or have bad credit due to irresponsible spending or losing your job, you won’t qualify for an unsecured loan. However, all is not lost because you can improve your credit by taking certain steps.