Personal unsecured Loans


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In finance, unsecured debt refers to any type of debt or general obligation that is not protected by a guarantor, or collateralized by a lien on specific assets of the borrower in the case of a bankruptcy or liquidation or failure to meet the terms for repayment.

In the event of the bankruptcy of the borrower, the unsecured creditors will have a general claim on the assets of the borrower after the specific pledged assets have been assigned to the secured creditors. The unsecured creditors will usually realize a smaller proportion of their claims than the secured creditors.

In some legal systems, unsecured creditors who are also indebted to the insolvent debtor are able (and in some jurisdictions, required) to set-off the debts, which actually puts the unsecured creditor with a matured liability to the debtor in a pre-preferential position.

Under risk-based pricing, creditors tend to demand extremely high interest rates as a condition of extending unsecured debt. The maximum loss on a properly collateralized loan is the difference between the fair market value of the collateral and the outstanding debt. Thus, in the context of secured lending, the use of collateral reduces the size of the "bet" taken by the creditor on the debtor's creditworthiness. Without collateral, the creditor stands to lose the entire sum outstanding at the point of default, and must boost the interest rate to price in that risk. Where high interest rates are considered usurious, unsecured loans are either not made at all, or are made by loan sharks unafraid of the law.

Oftentimes Unsecured Loans are sought out in cases where additional capital is required although existing (but not necessarily all) assets have been pledged to secure prior debt. Secured lenders will more often than not include language in the loan agreement that prevents debtor from assuming additional secured loans or pledging any assets to a creditor.

Malaysia[edit]

In Malaysia, there are personal loans for the private sector and for the government sector. The personal loan interest rate for the private sector is always higher than the government sector because it is of lower risk for the bank to lend to the government sector. The government will pay the salary of the civil servants through a payroll system known as the Biro Angkasa and the bank will deduct the monthly installment of the loan from the civil servant's salary through this system, before the salary is even released.

Interest rates for personal loans in Malaysia are influenced by either one of these factors: loan amount, loan tenure and income of the applicant. In some cases, the bank will take 2 or even 3 of these factors to decide on the appropriate interest rate to be applied to the personal loan. In 2013, the Malaysian Central Bank introduces a new maximum loan tenure of 10 years for personal loan (previous maximum loan tenure was 25 years).

Interesting facts

  • The Building Societies Act 1986 is an Act of Parliament of the United Kingdom governing building societies (mutually-owned mortgage-lending institutions). It removed certain restrictions on the range of services they could offer, so that they could compete with banks on a level basis: they could now make unsecured loans, offer cheque accounts...
  • Credit risk is an investor's risk of loss arising from a borrower who does not make payments as promised. Such an event is called a default. Investor losses include lost principal and interest, decreased cash flow, and increased collection costs, which arise in a number of circumstances:
    Credit risk can be classified in the following...

Additional information


Unsecured Personal Loans, Available For Tenants And Homeowners
Unsecured Personal Loans, Available For Tenants And Homeowners
Personal Loans - Unsecured Loans - Up to £25, from
Personal Loans - Unsecured Loans - Up to £25,000 from ...
Unsecured Personal Loans
Unsecured Personal Loans
Unsecured Personal Loans For Unforeseen Costs
Unsecured Personal Loans For Unforeseen Costs
Personal Investment & Loan Tips : Personal Unsecured Loans
Personal Investment & Loan Tips : Personal Unsecured Loans