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 come in. It primarily involves a lender and a borrower and a transaction between the two parties, with a certain amount of understanding and legal agreement.
The most common type of loan is a secured loan in which the lender keeps some assets of the borrower as security for lending the money. The other type of loan that has gained prominence these days is an unsecured loan. It does not have any security per se other than the creditworthiness of the borrower. At the outset, it may sound risky, but it has its perks and advantages. Here is a brief description of the unsecured loans in general.
What is the meaning of an unsecured loan?
The name gives a fair idea about what an unsecured loan is. Technically speaking, it is a loan that does not need any kind of collateral or security. The borrower’s assets are not given the main priority here. It is their creditworthiness that is at stake. Therefore, the borrower’s credit score must be pretty high to get approval for an unsecured loan. In case there is any discrepancy in the paying back of unsecured loans, the lender may hire a collection agency. Even if this step gets foiled, the lender has the right to go to court. The borrower is protected from any discrimination, though.
What are the different types of unsecured loans?
There are different types of unsecured loans available these days:
- The most common ones include unsecured personal loans, credit card loans, and student loans. The personal loan can be up to 25 lakhs for normal individuals and 30 lakhs for doctors.
- The credit card loan can be of two types, namely revolving and term loans.
- The difference primarily lies in the mode of payment and the timeline associated with it.
What are the features and benefits of an unsecured loan?
Some certain features and benefits make an unsecured loan extremely conducive:
- It does not have any discrimination between salaried and self-employed individuals. Both are equally eligible for it.
- The loan’s total tenure can be as low as one year, but it can be increased to as high as five years.
- There is also the provision of closing the loan prematurely anytime after paying the first six monthly instalments.
What are the charges and rate of interest of an unsecured loan?
Many factors need to be taken into consideration for determining the interest rate of a personal loan. These factors include your income, the obligation towards that you have every month, the location if you are salaried or self-employed. The unsecured loan interest rate is generally around 11.99%, but it can sometimes go as high as 36%. Therefore, the interest on unsecured loan is one aspect that should be considered when a borrower borrowslends money.
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
Ensure you have these documents on you when you apply for an unsecured loan from an approved lender.
How to check the eligibility for an unsecured loan?
Eligibility includes the criteria for getting unsecured bank loans. There are some standard criteria, like being an Indian Citizen and above 21 years of age and necessary documents for all. Some of them are different for people from other professions as well.
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 should be Rs.20,000 per month or higher.
For self-employed people
The statement for financial stability and a yearly income by the policies set by the lenders.
Application for an unsecured loan
The steps for applying for an unsecured loan is pretty simple. For unsecured loans online, you just need to fill the required form, put in the loan amount, upload the essential documents related to it, and you will have the amount at your disposal within a day. It is one of the quickest procedures for a loan in case of an emergency.
An unsecured loan sounds a little risky and has a higher interest rate than other secured loans. However, it can be beneficial for both the lender and borrower if all the protocols are correctly followed. It can solve a lot of emergency problems. The best part is that you do not have to justify the usage of it.