About unsecured loans

An unsecured loan is granted without collateral or a guarantor: the lender relies only on your income and credit history. Most loans to private individuals in Europe are unsecured, from small online loans to consumer loans of tens of thousands of euros. The advantage is simplicity: you do not need to pledge a home or a car. The price is a higher interest rate, because if the borrower does not repay, the lender has no property to sell to recover the money. Lenders offering such loans are collected under loans without collateral.

Fast and short-term loans

Fast loans are small amounts, usually from a few hundred to a few thousand euros, with an online application and a decision within minutes. They are repaid in one payment or in instalments over weeks or months. Because the fees are spread over a short term, their APR is the highest of all loan types, so they suit only a temporary gap that you can cover from your next income. Some lenders offer new customers a first loan without interest, but only if it is repaid on time. Like any lender, a fast loan provider must check your ability to repay before lending.

Consumer loans

Consumer loans, also called personal loans, are larger loans for a specific purpose, such as renovation, a car or another major purchase, repaid in fixed monthly instalments over several years, often up to ten. The lender assesses your income and existing obligations in more detail than for a fast loan. Because of the longer term and stricter checks, the APR is considerably lower, and for borrowers with a good credit history it can be close to that of bank loans. You can repay early at any time; the lender may charge limited compensation in some cases, which must be stated in the contract.

Credit lines, cards and overdrafts

A credit line gives you a limit that you can draw on in parts whenever you need it; you pay interest only on the amount used, and once you repay, the limit becomes available again. Credit cards and bank overdrafts work in a similar way. This flexibility is convenient but carries a risk: a limit that is always available can easily turn into permanent debt. Use such credit for short-term needs and repay it regularly rather than paying only the minimum.

Unsecured does not mean without consequences

If you stop paying an unsecured loan, the lender cannot take a specific item of property, but it can charge late interest and fees, report the arrears to credit registers, pass the debt to a collection agency and go to court. A court decision can lead to deductions from your income or the seizure of other assets. If you have trouble paying, contact the lender before the due date: a new schedule is almost always better than arrears.

If you need a larger amount or a lower rate and have property, a secured loan may be cheaper; see Loans with collateral.

Frequently asked questions

Why are unsecured loans more expensive?
Because the lender takes more risk: without collateral it may lose the money if the borrower does not repay, and it builds that risk into the rate.

How much can I borrow without collateral?
It depends on your income and the lender: from a few hundred euros for a fast loan to tens of thousands for a consumer loan from a bank. See How much can I borrow?

Can a guarantor help?
Some lenders offer a larger amount or a better rate with a guarantor. Keep in mind that the guarantor becomes fully responsible for the debt if you do not pay.