Unsecured Loans In India: Different Types Of Unsecured Loans Available

Financial stability is something that everyone looks for. However, it may not always be possible to be in control of your expenses. That is where the concept of loans comes in. To broadly categorise, primarily there are two types of loans – secured and unsecured loans. While home loans and car loans are secured loans where the property or vehicle is pledged as collateral, personal loans are considered unsecured loans. This is because you usually don’t need a guarantor or pledge collateral for personal loans.

So, what are the types of unsecured loans and their benefits? Let’s dive in.

What is an Unsecured Loan?

To be precise, a loan that does not need any kind of collateral or security is an unsecured loan. The borrower’s assets are not given the main priority here, instead, it is their creditworthiness that is at stake. Lenders usually check your credit score, monthly/annual income, repayment capacity and/or employment status for unsecured loans.

How do Unsecured Loans Work?

Lenders usually check your credit history when you apply for an unsecured loan. They do so to ensure if you have paid off your loans in due time in the past. This helps the lender to gauge you – whether you are a responsible borrower or not. 

You need to have a decent credit score – 750 or above to avail of an unsecured loan. However, some lenders and banks could offer unsecured loans with low or without CIBIL score. For such loans, that is loan without CIBIL score, the interest rates could be in the higher bracket. Lenders could also check your repayment capacity before approving your loan application.

What are the Different Types of Unsecured Loans?

• Personal loans: Probably the most common form of unsecured loans. You can get personal loans from any bank or financial institution.
• Credit card loans: 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.
• Pension loans: Individuals who are retired and drawing a pension can apply for a pension loan. It provides you with funds during any medical emergency or any other unforeseen circumstances.
• Consumer durable loans: Loans taken for buying any consumer-centric electronic goods are considered consumer durable loans. These loans are also unsecured loans.

Also Read: Two Wheeler Loans In India: Eligibility, Documents Needed & Benefits

What are the Features and Benefits of Unsecured Loans?

Some certain features and benefits make an unsecured loans extremely conducive:

• No collateral or guarantor required
• Flexible tenure and EMI options that could go up to 7 years
• Quick processing and disbursal
• Multi-purpose loans – you can use the loan to fund weddings, travel, etc.
• Less stringent eligibility criteria compared to home loans

What are the Charges and Rate of Interest on Unsecured Loans?

Many factors need to be taken into consideration for determining the interest rate of an unsecured loan. These factors include your income, the obligation that you have every month, and the location if you are salaried or self-employed. The unsecured loan interest rate could start from 8% p.a., but it could sometimes go as high as 36% p.a.

What are the Documents Required for an Unsecured Loan?

To further reiterate the point that there is no security or collateral required for unsecured lending, there are no documents required related to it as well. Here is a list of the others –

• A passport size photograph within six months
• A Government Approved identity proof
• Duly filled application form for a loan
• Document confirming age
• Bank account statement for the past six months
• A document for address verification
• Income Tax Return slip
• A fee for the processing of cheque

However, you only need your PAN and Aadhaar card to apply for a personal loan with Navi.

Also Read:Marriage Loan In India: Get Low Cost EMI Wedding Loans in 2022

Difference between Secured and Unsecured Loans

The following are the differences between secured and unsecured loan:

Parameters	Secured Loan	Unsecured Loan
Collateral	Requires collateral or guarantor	Doesn’t require collateral or a guarantor
Interest Rate	Lower interest rate due to less risk	Higher interest rate due to more risk
Loan Amount	Higher loan amount	Lower loan amount
Interest Rate	Lower interest rate	Higher interest rate
Repayment Period	Higher repayment tenures up to 30 years	Lower repayment tenures up to 7 years

How to Check Eligibility for Unsecured Loans?

There are some standard criteria to get unsecured loans, like being an Indian Citizen and above 21 years of age and necessary documents for all. However, the criteria might differ depending on your type of employment – salaried and self-employed.

• For salaried individuals

The employment should either be in the public sector or a private one. If you reside in Delhi or Mumbai, the minimum salary should be Rs.25,000 per month. For all the other states, it could be Rs.10,000 per month or higher.

• For self-employed people

The statement for financial stability and a yearly income by the policies set by the lenders.

Also Read:How To Apply For Instant Cash Personal Loans In Bangalore?

How to Apply for an Unsecured Loan

The steps for applying for an unsecured loan is pretty simple. For instance, with Navi you just need to download the app, fill in your personal details, enter your PAN number to check loan eligibility, select loan amount and apply. It hardly takes a few minutes to apply for a personal loan with Navi. But generally, here’s what you should do before applying for an unsecured loan.

Things to Consider before Applying for an Unsecured Loan

1. Compare lenders: Before you apply for a loan always make sure to compare different lenders to make an informed decision. Compare the interest rate, tenure or any other deals before applying.
2. Check your eligibility: Once you provide all the details like monthly income, preferred loan amount, company you are working for, the lender could offer you an amount you are eligible for. This could be less or more than the amount you are looking for. You can choose to calculate your eligibility with a loan eligibility calculator.
3. Provide correct information: Always provide correct information pertaining to your personal, income and employment details. Any incorrect information could lead to loan rejection, which in turn could adversely affect your credit score.
4. Check credit score: If you have a credit score above 750, you might fetch better deals on interest rate, loan amount, and tenure. Also, a good credit score could get you pre-approved offers. So, always check your credit score before applying for an unsecured loan.

Final Word

If you’re in need of urgent cash, unsecured loans could be your go-to option. However, since it’s an unsecured loan, loan default could call for higher penalties. So, maintain a healthy financial lifestyle and make timely payments to lead a stress-free life.

In case you’re looking for a personal loan, try the Navi app. Navi offers personal loans up to Rs.20 lakh at attractive interest rates starting from 9.9% p.a. What’s more – it’s a completely paperless process. So, choose your desired loan amount and apply!

FAQs on Unsecured Loans

Before you go… 

• Looking for instant 🚀 personal loans 24*7 anywhere, anytime? Install the Navi app on Android or iOS now!
• Or, maybe you’re looking to buy that house you’ve been eyeing 🏠 and you need a loan of up to Rs. 10 crore. Install the Navi app on Android or iOS now and get instant in-principle approval right away! Interest rates starting at 6.71% p.a.
• How about an affordable health insurance policy 👨‍⚕️ starting at a monthly premium of just Rs. 241? Install the Navi app on Android or iOS now and get your policy under 2 minutes.
• Instead, want to put your savings into action and kick-start your investment journey 💸 But don’t have time to do research. Invest now with Navi Nifty 50 Index Fund, sit back, and earn from the top 50 companies.