Which factor is essential for the approval of an unsecured loan?

The approval of an unsecured loan primarily hinges on the borrower's creditworthiness. Unlike secured loans, which require collateral to back the loan — such as property or other assets — unsecured loans rely entirely on the borrower's ability to repay. This ability is assessed through credit scores, income verification, debt-to-income ratios, and overall financial history.

Lenders use these factors to determine the risk associated with lending to an individual without the assurance of collateral. A strong creditworthiness indicates that the borrower has successfully managed debts in the past, making it more likely for them to repay the new loan. Thus, demonstrating solid credit history and financial responsibility is crucial for securing an unsecured loan.