About unsecured credits

What is an unsecured loan

An unsecured loan is granted without collateral or guarantors: the lender decides based on your income and credit history. This is convenient for people who have no suitable property to pledge or no one willing to act as a guarantor. Such a loan can help pay for a large purchase or cope with unexpected expenses, but it should never be taken lightly: you will have to repay not only the amount received but also interest, and the longer the term, the higher the total cost.

Because the lender has no collateral to cover its loss if the borrower fails to repay, rates on unsecured loans are usually higher than on secured loans. There are several types of unsecured loans, and they differ considerably in amount, term and cost.

Fast loans

Fast loans are arranged online and paid out within hours, sometimes even minutes. They are usually small amounts — from a few hundred to a few thousand euros — over a term ranging from a few weeks to several years. A creditworthiness check is mandatory but automated, so the decision comes quickly.

The main drawback of fast loans is their high annual percentage rate, which makes them among the most expensive types of credit. They are worth taking only for urgent expenses and should be repaid as quickly as possible. Some lenders offer new customers an interest-free first loan — in Latvia, such offers are collected in the “Free credits” section. But such a loan is only free if you repay it exactly on time: if you are late, high interest and penalties are charged.

Consumer loans

A consumer loan is issued for personal needs. It goes by different names — a renovation loan, a holiday loan, a personal loan — but the principle is the same: you receive an amount without collateral and spend it as you see fit.

A consumer loan can also be arranged online, but the lender usually checks the borrower more thoroughly, asking for information about income and expenses. The amounts and terms are larger — often up to 25,000 euros and up to 10 years — and the rates are lower than for fast loans, sometimes comparable to bank rates.

A consumer loan is usually paid out in one lump sum and repaid in equal monthly instalments. You can repay it early, in full or in part: in the EU borrowers have this right, and the lender may charge only small compensation, capped by law. You can find lenders in different countries in the “Consumer loans in Europe” section.

Credit lines

A credit line, or flexible loan, is another type of unsecured credit, particularly common in Scandinavia and Finland. You are given a credit limit, usually between 1,000 and 10,000 euros, and you withdraw money to your account in parts as needed. Interest is charged only on the amount you have actually withdrawn, and once you repay it, the limit becomes available again. In the way it works, a credit line is similar to a credit card.

The appeal of a credit line is its flexibility, but that is also its risk: money that is always available is easy to spend again and again. Make sure the debt does not become permanent.

You can compare unsecured loans from different lenders in the catalogue by country: Credits in Latvia, Credits in Europe — North & West and Credits in Europe — South & East.