Unsecured Loan – Types, Benefits, Interest Rate & Eligibility
What is an Unsecured Loan?
An unsecured loan is a type of loan that doesn’t require any collateral. In other words, you don’t have to pledge an asset, such as a house or car, to get the loan. Instead, the lender will assess your loan eligibility based on your credit score, repayment history, and income levels.
How Does an Unsecured Loan Work?
The lender of an unsecured loan will not require any collateral from you. To evaluate your creditworthiness, a lender could use parameters, such as your current credit score, your default history, your current income levels, and your debt-to-income ratio. Based on this assessment, a lender will decide whether to approve or reject your application. Also, based on your credit profile, the lender will decide the interest rate for your loan.
Upon approval, the cash will be disbursed to you. It could either be transferred directly to your bank account or the lender might issue a cheque or a demand draft. You are expected to make periodic repayments – the frequency at which you need to repay will be mentioned in your loan agreement and schedule. The payments you make will consist of two components – the principal and the interest. The principal is the amount you borrowed and the interest is the fee the lender is charging on the loan.
If you default on the payment of an unsecured loan, your credit score will take a hit. Moreover, a lender may impose late payment charges and higher interest rates on the outstanding payment.
Before applying, make sure you understand your repayment capacity and the terms of agreement.
What are the Types of Unsecured Loan?
1. Personal Loan
A personal loan is one of the most common types of unsecured loans that you can avail from any bank or NBFC. You can use a personal loan for any requirements such as medical expenses, travel, home renovation, etc. When you apply for an instant personal loan, you do not have to pledge any collateral; all you need to do is provide your PAN and Aadhaar details.
2. Education Loan
An education loan is a loan that a student can avail from banks or NBFCs to fund their education. These loans usually cover a student’s living expenses, tuition fees, cost of books and stationery, examination fees, library fees, laboratory charges, and other education-related expenses.
3. Peer-to-Peer (P2P) Lending
These are alternative and high-risk lending options from banks and other financial institutions. Peer-to-peer lending can be availed of on specific online platforms and marketplaces. It could be a good option for borrowers with low CIBIL scores, who may not otherwise qualify for personal loans offered by conventional banks and lenders.
4. Cash Loan
A Cash loan is an unsecured loan that you can avail to fulfill your financial expenses such as travel, children’s education, home renovation, medical emergencies, etc. You can apply for a cash loan from any bank or NBFCs and get the amount disbursed in minutes without putting any collateral.
5. Credit Card Loan
Credit cards are usually unsecured. So, if you are in need of urgent cash, you can get loans against your credit card. These are usually pre-approved loans and may come with a higher interest rate than personal loans. However, banks offer credit card loans to select credit cardholders depending on their payment history, credit score, and more.
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Feature and Benefits of Unsecured Loan
- No collateral or guarantor required
- Flexible tenure and EMI options
- Quick processing and disbursal
- Can be used for any legitimate purpose
- Less stringent eligibility criteria than secured loans
How to Apply for an Unsecured Loan?
- Download the app or visit the website of your preferred lender
- Check your eligibility by entering a few basic details
- Enter the loan amount and tenure of your choice
- Complete your e-KYC process
- Link you bank account and set up auto-debit
Once your application is approved, the money will be directly deposited into your bank account.
Unsecured Loan Interest Rate and Charges
The interest rate on unsecured loans starts from 9.9% p.a and goes up to 45% p.a., which depends upon your credit score and credit history. Here are some of the other fees and charges:
- Processing fee: Typically 0.5% to 2.5%
- Foreclosure fee: Normally between 2% to 5% of the outstanding amount
- Late payment charges: Between 2-3% per month
- Verification fee: It could vary from lender to lender
Documents Required for Unsecured Loan
- Address proof
- Identity proof
- Completed loan application form
- Age proof
- Salary, income tax returns, or other income documents
- Passport-sized photos, if required
Eligibility Criteria for Unsecured Loan
- Minimum age: 18 years
- Maximum age: 65 years
- Nationality: Indian resident
- Type of employment: Salaried or self-employed or someone with a regular, stable source of income
- Minimum credit score: 650 and above (could be higher, depending on the lender)
- Debt-to-income ratio: Generally, a good debt-to-income ratio, not exceeding 36%
Final Word
If you’re in need of urgent cash loan without documents, unsecured loans could be your go-to option. However, since it’s an unsecured loan, a loan default could attract steep penalties, in the form of higher interest rates and charges. So, have a loan repayment plan in place even before you apply for an unsecured loan.
Need instant cash? Stop looking around. Simply download the Navi App today and apply for a personal loan at attractive interest rates, starting at just 9.9% p.a. Oh, and did we mention that right from application to disbursal, then entire process is paperless, seamless, and superfast? So, stop waiting and book your ticket to financial safety and freedom with Navi Instant Cash Loan today!
FAQs
Yes, both salaried and self-employed individuals can apply for a personal loan. However, the documents required for a self-employed individual could differ from that of a salaried individual.
The maximum loan tenure is up to 7 years. With a Navi personal loan, it’s up to 6 years or 72 months.
Unsecured loans could be utilised for multiple purposes. Be it funding your wedding, next travel destination, child’s education, or shopping, you could use unsecured loans for literally anything.
This entirety depends on the lender. Usually, lenders charge an upfront fee or processing fee during loan disbursal. The fee could vary from lender to lender. However, some lenders often roll out a zero processing fee offer from time to time.
Traditional banks take 3-4 days to disburse an unsecured loan. However, with Navi, any eligible applicant can get a loan within minutes.
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