What are Collateral Free Loans and How to Apply Online?
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Collateral-free loans are provided by a bank or any financial institution to the borrower without any guarantee or a pledge. These unsecured loans are offered at a competitive interest rate and have flexible repayment options. However, before applying for a collateral-free loan, borrowers must know the intricacies of this type of loan. Read on to get a detailed insight.
Table of contents
What are Collateral-Free Loans?
Collateral-free loans are unsecured credit facilities that do not involve any collateral. Collateral refers to any asset that you can pledge to obtain funds from financial intuitions. In most cases, you can use an immovable property as security. However, in certain cases, other assets such as gold and financial securities can be pledged too.
Borrowers get to avail such forms of credit without having to provide any guarantee. However, unsecured loans are more high-risk loans than secured ones. In order to mitigate the risk, lenders often charge higher interest rates on non-collateral loans so that they do not lose all the money in case of defaults. For borrowers, it is advisable to go for a small loan amount or longer repayment tenure to keep the EMIs affordable.
Interest Rate and Charges of Collateral-Free Loans
The interest rate depends on multiple factors like your credit score, loan amount, etc. The interest rate can range from 8.30% to 36.00% p.a. on collateral-free personal loans. However, in the case of collateral-free business loans, the rate usually begins from 17% p.a.
Also Read: Apply For Instant Personal Rs. 15,000 Loan In India: Features, Benefits & Steps To Avail
Documents Required While Applying for Collateral-Free Loans
- A duly signed application form
- KYC documents like PAN cards, Aadhaar cards, voter ID cards, etc.
- Income proof
- Business proof
Eligibility Criteria for Collateral-Free Loans
To apply for a collateral-free loan, you must check out the points mentioned below:
- Your age should be within the bracket of 18 to 65 years
- You need to be an Indian citizen
- Your credit score should be above 650 with a clear credit history
- In the case of self-employment, the business must not be older than 5 years
- You must possess approval from the Department of Industrial Policy and Promotion (DIPP)
- You need to have a patron guarantee from the Indian patent and trademark office
Benefits of Collateral-Free Loans
Here are some features and benefits of collateral-free loans:
1. Flexible repayment terms
Generally, collateral-free loans provide the scope to choose a flexible repayment tenure. You can easily go for a longer repayment tenure to make your EMIs affordable. However, look out for the higher interest outgo in that case.
2. No End-Use restrictions
Besides getting access to a sizeable amount without having to pledge any asset, you can use the funds to meet any financial requirement. The no end-use restriction feature allows borrowers to make use of the funds to fulfil various monetary requirements, for example, financing a child’s education, meeting expenses at the time of medical emergencies, etc.
3. Easy to apply
The eligibility parameters are basic, and one can easily meet them while availing of a collateral-free loan. Although the eligibility criteria can vary across different lenders, the basic requirements are similar. Make sure to learn about both the eligibility parameters and documents required before applying for an unsecured loan.
Apart from these benefits, this form of financial assistance also comes with pre-payment facilities. However, if you are planning to pre-pay your personal loan, make sure to check the charges associated with it beforehand.
How to Apply for Collateral-Free Loans?
The process to apply for collateral-free loans is mentioned below:
Step 1: Open the application or the website of the borrower.
Step 2: Go to the personal loan section
Step 3: Enter the loan amount and EMI amount along with the loan tenure.
Step 3: Keep all necessary documents, as mentioned above, handy.
Step 4: Click ‘Apply’.
Alternatively, you can also download the Navi app.
It is also advisable to use a collateral-free loan EMI calculator before submitting the loan application. This way, you can plan your finances better as you know how much you will have to bear each month to repay the loan.
Also Read: Personal Loan Prepayment Calculator: Benefits & Steps To Use
Final Word
Since collateral-free loans are unsecured in nature, they can come with certain terms and conditions. Make sure you go through all that before initiating the application procedure. Also, it is better to compare the interest rates offered by different lending institutions to make sure that the cost of borrowing the funds is affordable. For a 100% paperless personal loan, flexible EMIs and a loan repayment tenure of 72 months, download the Navi app and apply today!
Frequently Asked Questions
The list of documents required varies from one lender to another. However, you need to keep the following documents to avoid any hassle:
• KYC
• Bank statements (last 6 months)
• Salary slips (last 3 months)
• Income tax returns
• Your business’s registration certificate (for self-employed individuals)
Personal loan interest rates depend on a range of factors. Lenders will check whether you fulfil the eligibility criteria and determine the risk involved. Depending on these checks, a lender finalises the interest rate on your loan. Therefore, improving your eligibility parameters can reduce a loan’s interest costs.
The eligibility criteria can differ depending on whether an applicant is salaried or self-employed. For instance, salaried employees aged between 18 and 60 years can avail such a loan. For self-employed, this usually ranges between 21 and 65 years.
Fixed Obligation to Income Ratio or FOIR is a measurement is metric that financial institutions utilise to calculate the loan eligibility of borrowers. Also referred to as the debt-to-income ratio, FOIR varies from one lender to another. That said, ideally, it should be anywhere between 40% and 55%.
You can avail an unsecured loan with a credit score of less than 750. However, to do so, you must apply with a co-borrower who has a CIBIL score of 750 or above. Some lenders may offer personal loans at higher interest rates if you have a poor credit score.
Ans: Repayment of collateral-free loans is quite flexible. You can opt to pay in either bi-weekly or monthly instalments over a tenure ranging from 1 to 3 years. Options for repayment include NACH (National Automated Clearing House) or other approved methods.
Ans: Yes, you can repay the entire loan amount in one single payment. The process of repaying the entire loan before the end of the tenure is called loan foreclosure. Depending on the financial institution, you may have to pay a certain fee for this facility.
Before you go…
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Disclaimer: This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
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