Unsecured Loan

A loan that does not require security backup is unsecured. An unsecured loan can be availed in the form of personal loans that can be used for various purposes and can be repaid in easy installments. The eligibility criteria and documentation are not extensive for an unsecured personal loan. The loan can be availed by submitting an online application along with the required documents. With a quick turnaround time, an unsecured personal loan can be the best solution for instant funds requirements.

A loan offered without any security is an unsecured loan. These are loans with high risk as there will the lender will not have any recourse in case of default. That is the reason unsecured loans are provided only to individuals/professionals with a good credit rating that indicates their creditworthiness and responsibility towards paying up debts promptly. 

A regular income is another criterion that is insisted on to ensure repayment capacity. The addition of a co-applicant will further enhance the chances of approval of the unsecured loan. However, the unsecured personal loan interest rate is much higher than the interest of secured loans.

Unsecured loans are quick loans that can be availed without the hassle of providing collateral security.

Key Features

• Purpose: The loan can be availed for any purpose. The utility aspect is versatile without any restrictions. It could be to pay off an existing debt obligation, for the education expenses of your children, to plan a vacation, for wedding expenses, to meet medical emergencies, and many more.
• Quantum: The quantum depends on the purpose as well as the income. It could range from Rs. 10000/- to Rs. 40.00 lakhs. Generally, the quantum will be lower compared to secured loans as the risk involved is higher. Some of the lenders consider providing higher amounts if the income of the applicant is satisfactory and the credit score is beyond the required level.
• Repayment: Unsecured loan has a shorter repayment tenure ranging from 12 months to 60 months.
• Rate of interest: An unsecured personal loan interest rate will be higher than the secured loans and will be between 8.60% to 21% p.a. The interest will be charged depending on the income, credit score, occupation, and tenure.
• Security: The most attractive feature of an unsecured loan is the security aspect. An unsecured loan does not require security backup.
• Credit Score: The minimum credit score required to qualify for an unsecured personal loan is 750 and above.

Benefits of Unsecured Loans

• No collateral security
• Quick turnaround time
• Flexible repayment option
• Simple documentation
• Quantum commensurate to income. The higher the income, the higher will be the quantum, and vice versa

There are various types of unsecured loans. Unsecured loans can either be revolving loans or term loans. Revolving loans are normally extended to run businesses. The different types of unsecured loans are given below:

Unsecured Personal Loan:

This loan can be used to meet urgent financial requirements. This loan is very convenient as it can be utilised for any purpose without providing proof of end-use. Approval of an unsecured loan is only based on the creditworthiness of the applicant and their past loan repayment history.

A simple online application can fetch you funds ranging from Rs. 10000/- to Rs. 40.00 lakhs depending on the income level and credit score. Some of the lenders provide pre-approved personal loans to eligible customers that will be instantly credited to their account on placing a request. Flexible repayment terms make an unsecured personal loan the most sought-after solution for instant funds requirements. The interest on an unsecured loan will be greater than that of a secured loan owing to the risk involved

Education Loan:

Banks provide unsecured education loans to students for higher studies. Education loans up to Rs. 7.50 lakhs will be provided without any collateral security. However, the inclusion of parents/guardians as co-borrowers will be mandatory.

The expenses covered under education loans are -

• Course fee
• Travel expenses for studies abroad
• Examination fee/laboratory fee/library fee
• Purchase of books/equipment/uniform. The purchase of a computer is permitted wherever it is required.
• Cost of study tours/projects etc. that is a part of the course.

A maximum repayment period of 15 years, excluding the course term and moratorium period of 12 months, will be permitted. If the interest is serviced periodically, the repayment will be set for the principal amount.

Credit Card: The preset limit based on the income and credit score is an unsecured loan that can be either repaid in full or part up to the amount utilised. The interest will be charged only to the extent of utilisation.

For individuals who have opted for revolving payment, this unsecured loan can prove very expensive as the interest charged on the balance will be as high as 3.5% pm. A zero-interest facility is provided for 45 to 50 days from the date of usage of the limit, which will be beneficial if you make the payment of the entire liability without carrying on any balance for the next billing cycle.

Revolving limit: This facility will be beneficial for businessmen to meet working capital requirements like procurement of raw materials, meet administrative expenses, and any other regular overheads that are business-related. This unsecured loan will be in the form of an overdraft with a preset limit considering the annual business income.

Sales proceeds credited to the account will bring down the liability. The limit will be restored to the extent of credit received and will be available for utilisation again. The advantage of paying the interest on the amount utilised and not on the limit sanctioned makes this facility a feasible option for businessmen.

Here are the key highlights of banks providing unsecured loans. You can avail of unsecured personal loans from any of the top banks listed below.

ICICI Bank

Axis Bank

SBI

Kotak Bank

HDFC Bank

You can get insight into secured vs unsecured loans with the points listed below.

The eligibility criteria stipulated for unsecured loans are as given below:

• The age of the applicant should be between 21 years to 65 years, except for student loans where the age can be below 21 years.
• The minimum monthly income required will be between Rs. 15000/- to Rs. 40000/- depending on the lender.
• The loan will be provided for both salaried as well as self-employed individuals, people in business, and professionals.
• Salaried individuals should have an overall minimum working experience of 3 years and a minimum experience of a year with the existing employer.
• Self-employed individuals/businessmen should have been in the existing business for a minimum of 3 years.
• A minimum credit score of 750 is required.

The documents listed below should be submitted along with the application for unsecured loans.

KYC documents:

Aadhar card, Voter’s ID Card, Passport, Driving Licence, Utility Bills

Photo ID Proof:

PAN Card, Passport, Driving Licence, Aadhar Card

Income Proof for Salaried Individuals:

• Salary slips for the last three months
• Latest IT Returns
• Latest Form 16
• Bank account statement for the last 6 months

Income Proof for the Self-employed:

• Audited balance sheet and profit and loss account for the last three years
• IT returns with income computation for the last three years.
• GST Registration Certificate
• Memorandum of Understanding, Articles of Association, Certificate of Incorporation, Partnership Deed, etc., depending on the constitution of the business.

Additional documents for Students Loan

• Marks sheet of SSLC, HSC, and Degree courses
• Copy of Admission Letter
• Schedule of Course Fees